Annual report and financial statements 2013
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Overview of the year
Financial overview
Group revenue
£10.0bn
1.3%*
Interim + final dividend
6.2p+
10.8p =
level
17.0p
Underlying Group profit before tax
Group profit before tax
£665.2m
5.8%
£564.3m
14.2%
Underlying Group earnings per share
Group earnings per share
32.7p
6.3%
29.2p
10.2%
UK
Our UK turnover is split between Food
(54%) and General Merchandise (46%).
With 766 stores across the UK and a
growing e-commerce business, we sell
high-quality, great value food and remain
the UK market leaders in womenswear,
lingerie and menswear.
Multi-channel
From browsing through to purchase and
delivery, we aim to provide the best
shopping experience for our customers.
Whether in stores, online or by phone,
we offer a convenient service for all our
customers – however and whenever
they choose to shop with us.
International
We are making the M&S brand even
more accessible to customers around
the world. We now operate in 51
territories across Europe, the Middle
East and Asia and continue to grow our
international presence through a
multi-channel approach.
Read more on page 16
Read more on page 26
Read more on page 28
General Merchandise revenue
£4.1bn
2.4%
Food revenue
£4.9bn
3.9%
Number of UK stores
766
35 net new stores
Multi-channel revenue
£651.8m
16.6%
Weekly site visits
3.6m
18%
Shop Your Way
stores
476
21 stores
International revenue
£1.1bn
4.5%*
International stores
418
31 net
new stores
Territories
51
8 new markets
Plan A
We aim to become the world’s most sustainable retailer and Plan A, our eco and ethical programme, is at the
very heart of how we do business. More than five years since launch, we continue to extend the influence of
Plan A – engaging our employees, suppliers and customers.
Read more on page 32
Total Plan A commitments
Commitments achieved
Commitments on plan
180
139
31
* Group revenue and International revenue increases are stated on a constant currency basis throughout the directors’ report. Using actual rates Group revenue
was up 0.9% and International revenue was up 0.9%.
Overview
Chairman’s statement
Marketplace
How our business operates
O
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Online shareholder information
Our online reporting suite keeps
shareholders fully up to date, whilst
helping us reduce our paper usage.
Over 26,000 shareholders have signed
up for electronic communications and
are benefiting from more accessible and
interactive information. To register, simply
go to marksandspencer.com/investors
and follow the ‘Electronic Shareholder
Communication’ link.
Investor Relations app
The Marks & Spencer Investor Relations
app provides investor and financial
media information in an iPad-optimised
format. The app delivers the latest
share price information and corporate
news as well as financial reports,
presentations and corporate video.
For more information visit
marksandspencer.com/investors
Plan A
For highlights of our performance
against Plan A go to page 32 of this
report. More detailed information
about the progress we have made
this year is available on our online
Plan A 2013 report at
marksandspencer.com/plana2013
Discover more – go online
The ‘discover more’ logo in this report
indicates that we have additional
content available on our online version at
marksandspencer.com/annualreport2013
Discover more online
Strategic review
Chief Executive’s overview
Our plan in action
Performance against our plan
People behind the plan
Our plan in action
Our brand
General Merchandise
Food
UK stores
Multi-channel
International
People
Plan A
Financial review
Financial review
Governance
Chairman’s overview
Board of directors
Leadership
Effectiveness
Accountability
Engagement
Audit Committee
Nomination Committee
Remuneration report
Pensions governance
Other disclosures
Independent auditors’ report
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Financial statements and other information
Consolidated income statement
78
Consolidated statement of comprehensive income 78
79
Consolidated statement of financial position
80
Consolidated statement of changes in equity
81
Consolidated cash flow information
Notes to the financial statements
82
110
Company statement of financial position
110
Company statement of changes
in shareholders’ equity
Company statement of cash flows
Company notes to the financial statements
Group financial record
Shareholder information
Index
110
111
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Chairman’s
statement
“ We are implementing
revolutionary change
in our retailing
systems and
infrastructure but
the values on which
M&S was founded
remain unaltered.”
Robert Swannell
Chairman
DiviDenD
Interim dividend paid on
11 January 2013
6.2p per share
Final dividend to be paid
on 12 July 2013
10.8p per share
Total dividend for
2012/13
17.0p per share
Annual report and financial statements 2013
02
This year we set out some planned
changes to our non-executive team.
Having served on the Board since 2006,
Jeremy Darroch will retire from the Board
in June 2013. I would like to thank
Jeremy for his significant contribution
to M&S and his strong leadership of our
Audit Committee. We welcomed Andy
Halford as a non-executive director in
January. As Chief Financial Officer of
Vodafone for the past eight years, Andy
has a wealth of valuable experience and
will succeed Jeremy as Chairman of the
Audit Committee from June. With
continuity in mind, Steven Holliday
agreed to stand for re-election at the
AGM for a further year, before stepping
down at the AGM in July 2014. By this
time he will have served on the M&S
Board for ten years and chaired the
Remuneration Committee for almost
five years.
After nine years, Steven Sharp, Executive
Director, Marketing, is retiring from M&S.
He will step down from the Board
following the AGM and will continue to
work in the business as Creative Director
until 28 February 2014. I would like to
thank Steve for the significant role he has
played in shaping the M&S brand and
reinforcing our quality, style and ethical
credentials through numerous iconic
campaigns.
As a result of this change, Patrick
Bousquet-Chavanne will take over
responsibility for marketing and will be
put forward for election to the Board
as Executive Director, Marketing and
Business Development at this year’s
AGM. Patrick joined M&S in September
2012 as Director of Strategy
Implementation and Business
Development and has played a key
role in the development of the new
marketing strategy in womenswear.
2012/13 was another year of progress
for M&S, where a mixed trading
performance was balanced by good
progress in building our long-term
foundations, in line with our key
strategic goals.
We are implementing large-scale
revolutionary change that spans our
supply chain, stores, web platform and
IT infrastructure – creating a sound base
for sustainable future growth. However,
our plans to transform M&S have not
altered the values on which we were
founded; our commitment to Quality,
Value, Service, Innovation and Trust
continues to set us apart.
Performance and dividend
In a difficult year, customers continued to
place their trust in M&S. We delivered
consistently strong results in our Food
business, up 3.9%. Our executive team
took decisive action to address areas of
underperformance in our General
Merchandise business and we began
to see improvements in our operational
execution and a reassertion of our
quality credentials.
We made significant improvements to
our UK operations: rolling out our new
store concept across our estate, opening
a new e-commerce distribution centre
and strengthening our systems. Our
Multi-channel business and our priority
International markets grew strongly,
supporting our strategic goals.
In line with our dividend policy, we
remain committed to delivering
consistent returns to our shareholders.
This year we intend to pay a final
dividend of 10.8p, unchanged from
last year.
Governance and the Board
On joining M&S, I set out three clear
priorities for the Board and we remain
firmly focused on these key aspects.
First, to debate and agree our strategy,
holding the executive team accountable
for its execution. Second, to ensure we
have the most talented team to execute
our strategy and that we plan effectively
for succession. Finally, to set the tone of
‘doing the right thing’, supported by the
appropriate governance structures and
their effective implementation.
OverviewMarks and Spencer Group plc Our governance principles
Leadership
Strategy, performance, responsibility
and accountability are at the heart
of your Board’s discussions. We
interrogate each area to ensure
high-quality decision-making, that in
turn drives a culture of continuous
improvement across the business.
Read more on page 42
Effectiveness
Our performance is independently
reviewed on a regular basis to
ensure that the Board remains
focused, is provided with actions
for improvement and meets targets
for future improvement.
Read more on page 44
Accountability
Strategic decision-making is discussed
within the context of risk, ensuring that
we understand and, where possible,
mitigate those risks to which M&S
is exposed.
Read more on page 45
Engagement
Building relationships with private and
institutional investors is fundamental to
achieving our goals. We do so through
face-to-face meetings and a range of
communications channels.
Read more on page 49
Annual report and financial statements 2013
03
As part of our commitment to share our
progress, a preview of our forthcoming
Autumn/Winter Womenswear collection
is enclosed with this report. We have
compiled this exclusive edit for our
shareholders, which I hope illustrates
how we have listened and responded to
our customers.
The Notice of Meeting that accompanies
this report highlights a change of venue
for our AGM. As part of our plan to make
M&S a more efficient business, this year’s
meeting will be held at Wembley, which
has the facilities to host all our large-scale
events, both internal and external. It is
also easily reached by public transport
and we encourage all our shareholders,
large and small, to attend.
Looking ahead
As we move into the third year of our
plan we are fully committed to its
execution. Though the retail landscape
remains challenging, we are in no doubt
that this is the right course.
The fundamental and revolutionary
changes taking place to the
infrastructure of M&S are essential. Our
progress will become increasingly visible
to our stakeholders, as customers
experience the tangible benefits of the
improvements we have made. We are
confident that these changes will deliver
a more valuable company.
Delivering and executing this level of
change requires hard work,
perseverance and most of all
commitment. I am always impressed by
the efforts of our employees – wherever
they work in M&S – and I thank them
sincerely for their contribution this year.
Robert Swannell
Chairman
This year, we made internal changes to
strengthen our executive team on the
Board. John Dixon was appointed as
Executive Director of General
Merchandise and after 26 years with
M&S, has a proven track record in a
variety of roles, most recently as
Executive Director of Food. Former
Director of Retail Steve Rowe is a proven
retailer with 23 years’ experience at M&S
and he has succeeded John as
Executive Director of our Food business.
How we do business
The founders of M&S understood clearly
the importance of ‘doing the right thing’
to create long-term value. We continue
their tradition of responsible behaviour
through our comprehensive
environmental and ethical programme,
Plan A. To succeed over the long term
businesses need to make connections
with society and Plan A is our
manifestation of that. It also makes
sound economic, as well as moral sense.
Values matter in business – and we work
hard to maintain high levels of trust and
transparency with all our stakeholders
– particularly across the supply chain.
Operating our business in the right way
has benefited us at a time when
transparency of supply has never been
more important to customers.
Plan A forces us to think differently and
accept new ways of doing things. It’s
also influenced how we do business,
enabling us to be open – both inside
and outside the Boardroom – about our
achievements and equally frank when
we fall short of expectations or targets.
Over five years since launch, the
programme’s values remain central to
our long-term future and our connection
with employees and customers.
Shareholder engagement
Taking shareholders with us on our
journey allows them to see clearly the
progress we are making. We held a
number of investor and analyst events
during the year, including a visit to Istanbul
to see our international operations at first
hand. We also held a briefing on our
multi-channel re-platforming, hosted visits
to our new flagship store at Cheshire
Oaks and our new e-commerce
distribution centre at Castle Donington.
More recently, we held a briefing on our
plans for our General Merchandise
business. All of the information shared
at these events is available to our
shareholders at marksandspencer.com/
investors.
OverviewMarks and Spencer Group plcOverviewStrategic reviewFinancial reviewGovernanceFinancial statements and other information
Marketplace
Annual report and financial statements 2013
04
Customers are the heart of our
business, so it is vital that we
understand what they want from M&S.
Our Customer Insight Unit (CIU) uses
a combination of market research
and customer feedback to help us
understand how our customers think
and identify the factors that influence
their shopping behaviour.
Market overview
During 2012/13 there was little economic
growth in the UK, with a Gross Domestic
Product increase of just 0.3% in 2012.
Vacancy rates remained high and over
the course of the year a number of well
known retailers disappeared from the
high street.
Rising energy costs and petrol price
increases further squeezed household
budgets this year. As the gap between
pay rises and inflation widened, incomes
were further eroded by benefit cuts and
the removal of certain tax credits.
The market was adversely affected by
unseasonal weather conditions during
2012/13. The early part of the financial
year included three of the wettest months
on record and the UK experienced the
coldest March in over 50 years.
These factors contributed towards a
market footfall decrease of 3.7%. Retailers
fought hard to win consumers’ spend and
there were continued high levels of
promotional activity on the high street.
There were genuine moments of national
celebration during the year and The
Queen’s Diamond Jubilee and the
Olympic Games lifted the nation’s mood.
However, the feelgood factor they
generated proved fairly short-lived and
did not translate into higher retail sales.
How is this affecting our
customers?
Consumers have become used to
navigating choppy economic waters and
confidence levels continued to improve
as a result. However, high profile
administrations – coupled with the
ongoing threat of a triple dip recession
– meant this confidence remained fragile
and a sense of caution prevailed.
Consumer confidence index
0
-5
-10
-15
-20
-25
-30
-35
-40
N ov 11
D ec 11
Jan 12
Feb 12
M ar 12
A pr 12
M ay 12
Jun 12
Jul 12
A ug 12
Sep 12
O ct 12
N ov 12
D ec 12
Jan 13
Feb 13
M ar 13
A pr 13
Source GfK
With the unique national celebrations
finished in the early part of the year,
customers attached greater significance
to traditional events and family
celebrations. They were determined to
make these occasions truly special –
making their time with friends and family
more memorable.
Over the last year, any growth in the
market has come from online, as more
customers shifted to shopping across
multiple channels. As a result, they
expected retailers to join up their different
shopping channels and provide them
with a seamless experience and service
whichever way they chose to shop.
Health and wellbeing also featured
prominently in consumer priorities this
year. They looked to retailers to help make
living a healthier lifestyle more enjoyable
and affordable, with less emphasis on
dieting and more focus on delicious and
nutritious quality ingredients.
Trust was also an important issue within
the food industry this year. Customer
concerns about transparency and
traceability in the meat supply chain
prompted a move towards quality
food retailers.
Ultimately, consumers wanted to feel
every purchase they made was
worthwhile – adding genuine value to
their lives. As a result, they looked to
retailers to inspire them and provide
clear reasons to spend.
How are our customers shopping?
With shopping trips restricted and
budgets limited, customers told us that
they wanted to enjoy their shopping
experience, in a stress-free and inspiring
environment. They wanted to feel valued
by retailers and great customer service
was a key consideration for shoppers.
As a result, we invested further in our
service proposition – delivering new
training to our store employees.
The continued growth of smartphone
and tablet ownership meant mobile
devices became an even more influential
browsing and buying tool this year. This
growth has not only made it easier for
customers to shop on the move but it
has also altered their behaviour at home,
with the rise of ‘second screening’.
This trend, whereby more customers
are watching TV with a mobile or tablet
device in hand, has proved to be a
valuable opportunity for retailers to
engage directly and provide consumers
with reasons to interact with their brand
there and then. Our marketing activity
responded to this trend, as explained
on page 16.
Consumers’ purchasing decisions were
increasingly influenced by how quickly
and easily they could receive their
goods. As more retailers launched and
improved next day delivery options,
customers’ expectations were set even
higher. Customers now expect flexible
and tailored choices for both ordering
and delivery as standard and we worked
hard to improve our Shop Your Way
service, as explained in the Multi-channel
section of this report on page 26.
OverviewMarks and Spencer Group plc CUSTOMER INSIGHT
“I want every purchase
I make to feel worthwhile
and really make a
difference to me.”
How we have responded
Area
Clothing
The clothing market remained flat this
year and was impacted by unseasonal
weather. Limited consumer budgets,
meant womenswear in particular
continued to be extremely competitive
and very promotionally driven.
Impact
Many consumers
deferred their
shopping trips,
deciding to ‘make
do’ with their
existing wardrobe,
unless they were
presented with
compelling
reasons to buy.
Home
The static housing market meant sales
of big-ticket items such as furniture
remained depressed. Consumers
increasingly used stores
as ‘try before you buy’
showrooms to make
purchasing decisions,
but used online methods
to purchase – avoiding
additional distractions.
Food
Driven by commodity and fuel price
increases, inflation continued to be
the principal factor affecting the food
market. Competition amongst retailers
remained intense, with high levels
of promotional activity. In the wake
of the supply chain issues, trust and
traceability became a priority
for customers.
With continued emphasis on family and
socialising at home, customers looked
for inspiration and affordable style, as
their focus remained on smaller-scale
projects to refresh and update
their homes.
Customers continued to demand good
value food, but also expressed renewed
commitment to healthy eating,
particularly in the New Year.
They looked for a stress-free
shopping experience,
with clear promotions
and quality they
could trust.
Brand
In a challenging market, dependable
established brands continued to benefit.
The well publicised issues in the food
supply chain further fuelled
a migration towards quality,
trusted brands.
With a limited budget available –
consumers turned to brands they trusted
to deliver genuine quality. They wanted
every purchase to make a difference to
their lives.
Multi-channel
This year online and mobile channels
continued to play an increasingly
important role in influencing shoppers
and determining their purchasing
decisions.
shop
your
way
in store
Customers were
looking for integrated,
effortless shopping
experiences that
allowed them to
make well-informed
choices and buy
in the way that
suits them best.
online
on the go
free next day delivery to this store
Annual report and financial statements 2013
05
Response
We established eye-catching ‘trend
zones’ aligned to our advertising
campaigns in stores, giving
customers ideas on outfit building
and enabling them to clearly identify
the right products for them.
Our new inspirational roomset layout
delivered a real wow factor in stores,
showcasing statement pieces of
furniture, homeware and accessories
from our collections. We also featured
stylish room ideas on our website,
Home catalogue and on the new M&S
Home iPad app. Furniture sales
increased as a result.
Our Simply M&S range caters for
customers seeking affordable quality
and we continued to extend our
Health offer, with a brand new
range – Delicious and Nutritious.
Our reputation for exceptional food
provenance served us well this year
and we reminded our customers
of our longstanding relationships
with British farmers who share our
values and commitments.
Our marketing activity highlighted the
quality and innovation that sets M&S
apart – both in Food and Clothing. We
used a broader variety of models so
customers could see how the latest
styles would make a difference to their
wardrobes. Our food campaigns
showed how M&S Food can
make ordinary occasions special.
This year we better integrated our
shopping channels – bringing the
latest digital technology into our
stores. We launched our first
transactional iPhone app and added
new browse and order points to our
stores. We rolled out over 1,500 iPads
to our employees – helping to offer a
more personalised service.
OverviewMarks and Spencer Group plcOverviewStrategic reviewFinancial reviewGovernanceFinancial statements and other information Marketplace continued
Annual report and financial statements 2013
06
International marketplace
GDP continued to grow in our priority
markets of Russia, the Middle East,
India and the Shanghai region of China.
Trading conditions continued to be
challenging across the Eurozone,
particularly in Greece, Spain and
the Republic of Ireland.
We believe most trends are global and
our UK catalogue is the core of our
international offer. Careful editing
ensured that our collections remained
relevant to the slightly younger age profile
of our international customers. We also
responded to a variety of international
demand trends including increasing local
garment sourcing in India. This has
resulted in faster speed to market,
improved margins for us and better
choice and fit for the customer. We also
introduced better phasing of outerwear
in Russia to capture the market earlier in
the season when demand is highest.
Our British heritage and brand values
are key assets for M&S in international
markets. A heightened appetite for all
things ‘British’ was particularly apparent
this year, as global attention focused
on The Queen’s Diamond Jubilee and
the London Olympics. These events
presented us with the ideal opportunities
to showcase the best of M&S and
differentiate ourselves from local
competitors.
Plan A participation
This year we continued to extend our
influence beyond M&S. More customers
than ever took part in a variety of Plan A
activities.
Highlighting our credentials
The M&S brand is synonymous with British
style. Our Golden Bell store in Shanghai
carried a range of exclusive products that
showcased our UK heritage.
As part of our strategy to become an
international multi-channel retailer, we
launched websites in Germany, Spain,
Austria and Belgium, extending our reach
into the some of the fastest growing
online fashion markets in Europe. Making
the most of London’s status as an
international fashion capital, the launch
was themed around showcasing the very
best of ‘London style’ – from our
catwalk-influenced Limited Collection to
the craftsmanship of our Savile Row
Inspired tailoring. M&S’ British heritage
will continue to play a leading role in our
international marketing activity.
How Plan A helps us respond
Plan A – our eco and ethical programme
– sets us apart as a leader in the
marketplace and helps us tackle the
sustainability issues that face all major
retailers.
With key raw materials and natural
resources under increasing pressure, we
continued to develop a more sustainable
supply chain, focusing on areas such as
cotton and sustainable fishing. Our
long-established strict sourcing
standards meant M&S did not need to
withdraw any products as a result of the
supply chain issues.
In a challenging economic environment,
Plan A also helps us to run a more
efficient business, through reducing
waste and energy use. We continued to
share our experiences with suppliers –
enabling them to reduce their own
manufacturing costs and create a more
sustainable future.
This year we launched new ways to
engage our customers in Plan A, with
exciting initiatives such as Shwopping
and our Big Beach Clean-Up.
Looking ahead
Customers are pragmatic about the
future, realising that economic
recovery is still some way off.
However, they are gaining increasing
confidence, thanks to their ability to
manage through these difficult times
and remain focused on spending
wisely and well with retailers they trust.
OverviewMarks and Spencer Group plc How our business operates
Annual report and financial statements 2013
07
Over the last 129 years M&S has grown from a single market stall to become an
international multi-channel retailer. We now operate in over 50 territories
worldwide and employ almost 82,000 people. Remaining true to our founding
values of Quality, Value, Service, Innovation and Trust, we work hard to ensure
our offer continues to be relevant to our customers. Through diversifying our
store locations, channels and product ranges we are reducing our dependence
on the UK and broadening our international focus.
In touch
Customers are at the heart of our
business and through our Customer
Insight Unit, we ensure their needs
inform every aspect of our decision-
making. Through a combination of
customer feedback, focus groups and
consumer research we are in touch with
over 17,000 customers every month,
helping us anticipate their needs.
What we offer
Our heritage of innovation helps us lead
the way with first-to-market products
across food, fashion and homeware. We
are the UK’s leading clothing retailer and
offer high-quality food, with a focus on
freshness, convenience and speciality.
Our own-brand model sets us apart and
we further differentiate our offer through
exclusive collaborations.
Reaching our customers
Our products are sold through 766 UK and
418 international stores – in diverse
locations across high streets and out of
town retail parks. Our Simply Food
franchise partnerships ensure we are in the
most convenient locations – from railway
stations to motorway services. As
shopping habits change, we’re combining
the best of web and store to extend our
reach and drive more spend from
customers. In-store technologies help
customers shop more of our catalogue
and our newly-created app enables
browsing and buying for shoppers on the
move – making M&S available 24/7.
Investing in our people
We communicate with our people
throughout the year via a range of
channels and measure employee
engagement quarterly. All our training and
support activities are closely linked to our
business plans; from improving employee
skills and product knowledge to the
development of future leaders for M&S.
Innovative ways of working
Ongoing improvements to our operations
are making us more efficient. Our
restructured supply chain has improved
our stock management and availability
and our e-commerce distribution centre
and new IT platform will strengthen our
ability to deliver growth. The creation of a
long-term sustainable business model
for M&S through Plan A lies at the heart
of the way we work.
Managing risk
Effective risk management is essential
to the achievement of our strategic
objectives – and a key consideration in
our Board’s deliberations. In evaluating
risk, we consider external competitor and
economic factors, our core day-to-day
operations, business change activity and
potential future risks. Mitigating activities
to address these are detailed in the
Accountability section of this report.
M&S business model
Our people
Our culture
Supplier
relationships
Innovative ways
of working
Financial
& strategic
planning
Supply chain &
logistics
’
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Food
Clothing
Home
Our channels
– Stores
– Online
– Mobile site
– In store ordering
– Telephone
– Home catalogue
Our locations
– Major shopping
centres
– High streets
– Retail parks
– Railway stations
– Airports
– Petrol and service
stations
– 24/7 online
l
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Our values
Quality
Value
Service
Innovation
Trust
Plan A – How we do business
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Chief Executive’s
overview
In a difficult marketplace M&S
performed well, with sales up 1.3%.
Our Food business delivered an
excellent performance, as we
strengthened our position as a
specialist retailer and benefited from
customers’ ongoing trust in our
provenance and innovation. Our GM
performance was unsatisfactory but
we took action and have set out a
clear plan for improvement. Our
International business performed
well and M&S.com delivered strong
growth.
We continued to steer the business
through the challenges of today’s
market, remaining focused on our plan to
transform M&S from a traditional British
retailer into a leading international
multi-channel retailer. At the end of the
second year of our plan, this strategy
remains as, if not more, relevant. Over
the last 12 months, we have driven our
plan with real momentum.
General Merchandise
Clothing sales were not satisfactory this
year and we took decisive action to
improve performance. A new team was
appointed to manage the business under
John Dixon’s leadership, supported by
Belinda Earl in the newly created role of
Style Director.
Having improved our operational
execution and stock management, our
customers benefited from better
availability. In a highly promotional
market, our tactical offers on selected
products were well-received.
We have a clear plan to address our
performance, with a renewed
commitment to quality and style. These
improvements are reflected in our
upcoming Autumn/Winter collections and
our progress will continue step by step.
Food
Our Food business delivered a strong
performance throughout the year, up
3.9%. Like-for-like sales were
consistently ahead of the market, driven
by our trusted quality, provenance and
ongoing innovation, which saw us refresh
25% of our entire range. M&S remains
the destination of choice for special
occasion food. Customers put M&S food
at the heart of their celebrations,
resulting in a record Christmas and our
best ever Easter performance.
The launch of our Simply M&S range,
coupled with our well-targeted offers,
helped value conscious customers do
more of their regular shop with M&S.
Greater employee ‘ownership’ of zones
in our Food Halls enhanced customer
service and our improvements to space,
range and display delivered better
on-shelf availability.
Stores
Our new store concept has now been
implemented in over two-thirds of our
stores – giving customers a clearer,
more inspirational in-store environment.
This year we started the second phase
of our store transformation – which
included the roll-out of our new
M&S Beauty and Home concepts.
“ We have made good
progress as we
transform M&S from a
traditional British retailer
into an international,
multi-channel retailer.”
Marc Bolland
Chief Executive
Revenue
General Merchandise
£4.1bn
2.4%
Food
£4.9bn
3.9%
Multi-channel
£651.8m
16.6%
International
£1.1bn
4.5%
Our plan
Drive UK
like-for-like
growth
UK space and
like-for-like
growth
5
1
0
2
y
B
3
1
0
2
–
2
1
0
2
Focus on UK
International
multi-channel retailer
Drive
international
presence
A leading UK
multi-channel retailer
International
company
Brand
Clothing
Home
Food
Stores
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following the launch of new websites.
Enhanced visual merchandising in our
stores improved the clarity and
consistency of the M&S brand and we
made a number of improvements to our
international operations. We also
strengthened our franchise relationships
and provided additional marketing
support to our partners.
Brand
Our brand is one of our strongest assets
and our advertising campaigns reflect
how we are in touch with our customers’
changing needs. This year, we used a
selection of models representing a range
of ages and sizes; better reflecting our
customer base and showing our
customers how to wear the season’s key
looks. Towards the end of the year, our
Perfectly campaign featured an edited
collection of iconic products from our
womenswear range. We bought with
confidence into these advertised lines
and sales increased as a result.
Our recently launched Make Today
Delicious campaign encourages
customers to make every food moment
special with our innovative, quality food.
Plan A
We believe our customers are the driving
force for change and over five million
customers participated in Plan A
activities this year. We stepped up our
efforts to engage them in more
sustainable living through a range of
initiatives including Shwopping, which
has already helped divert 3.8 million
garments from landfill, and our Big
Beach Clean-Up. Our five year
anniversary in 2012 marked a major
milestone in our journey but we have
renewed our efforts to fulfil and exceed
our own commitments. We also worked
to extend our influence and share our
learning beyond M&S – to our
customers, suppliers and the wider
industry.
Both departments performed very well
and feature the latest in multi-channel
thinking – driving customer engagement
and increased sales. In August 2012, we
opened our flagship store at Cheshire
Oaks, which brought together all the
elements of our new store format under
one roof for the first time.
Multi-channel
M&S.com sales accelerated this year and
grew ahead of the market at 16.6%.
Through a combination of better site
navigation, more style advice and greater
choice, we increased weekly visitors to
3.6 million. We further improved our
popular Shop Your Way option, with free
next day delivery to stores and provided
customers with more inspiration and
choice through the introduction of new
in-store technologies. We also launched
several brand new ways to shop with
M&S, including our first ever transactional
iPhone app.
International
International sales were up 4.5% this
year. We saw double digit growth in our
priority markets but experienced more
challenging conditions in our legacy
European markets. We expanded our
presence with a multi-channel approach,
opening 45 stores and putting M&S
online locally in a total of ten territories,
Our greenest ever store
Plan A ambassador Joanna Lumley
joined us for the opening of our
greenest ever store at Cheshire Oaks.
As well as establishing leading eco
credentials, it created more than
350 jobs in the area.
Discover more online
Transforming our business
To fulfil our international, multi-channel
ambitions, it is essential we have the
infrastructure and organisational
capabilities to drive this growth. Since
we launched our plan to transform M&S,
we have made considerable progress.
We now have a stronger organisational
structure and a rich pool of talent across
the business. As Alan Stewart explains
on page 34, we have significantly
enhanced our supply chain operations
with the opening of our first dedicated
e-commerce distribution centre at Castle
Donington. We have also made good
progress with our systems upgrades and
our new multi-channel platform build is
on schedule for launch next spring.
Marc Bolland
Chief Executive
Looking ahead
The market will remain challenging for
the foreseeable future and we expect
consumer spending to remain
cautious and carefully planned.
However, our attention to delivering
exceptional quality and market-
leading innovation means we are well
positioned to navigate through the
short term.
We remain fully committed to the
delivery of our plan; ensuring that as
we evolve we remain in touch with
our customers so that we can
anticipate and respond to their
changing needs.
Our transformation of M&S into a
leading multi-channel retailer will be
supported by the creation of stronger,
more agile infrastructure – building a
robust platform for our long-term
growth.
Please turn over the page to see
the highlights of our plan in action.
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Our plan in action
Our aim is to make M&S a truly international, multi-channel retailer
– accessible to even more customers around the world. We have
created considerable momentum through a wide range of
activities and are making good progress.
Focus on the UK
Read more on page 16
Trusted food
In a year when trust
was more important than
ever, customers turned
to M&S for great quality,
responsibly sourced food.
Our innovation kept them
coming back – with over
1,900 new lines launched
this year.
1,900
Multi-channel
Read more on page 26
Online sales
More people than ever
chose the convenience of
shopping with us online.
Improved navigation,
greater choice and
exclusive ranges and
offers boosted online sales
by 16.6% this year.
International
Read more on page 28
Multi-channel expansion
We are building our
European presence through
a ‘clicks & bricks’ approach.
Complementing our French
website, we launched
Shop Your Way at our two
Paris stores. We have two
additional full line stores
due to open in 2013.
Clic & Shop
En magasin
En ligne
livraison gratuite en magasin
Via mobile
Plan A
Read more on page 32
CO2 neutral
We were proud to retain
our status as a certified
CarbonNeutral® company
across our operations in the
UK and Republic of Ireland.
We are actively developing
programmes aimed at
encouraging our suppliers
to reduce their greenhouse
gas emissions.
Cheshire Oaks
Every aspect of the new M&S
format comes together at our
new store. Showcasing all
our products in a visually
stunning environment, the
store boasts impeccable
green credentials and
has performed well
ahead of plan
since launch.
Free next day delivery
Shop Your Way orders
increased this year, after we
introduced free next day
delivery to our stores. 54%
of orders are now collected
or placed in a store.
54%
New stores
M&S has a clear and targeted strategy
for international growth. We continue
to expand in key locations across
our priority markets, employing a
mix of ownership models including
partnerships and franchises.
45 new
stores
Plan A products
45% of our products now have a
Plan A quality – such as Fairtrade,
organic or made from recycled
material. We’re making good progress
against our target of making this 50%
of products by 2015.
45%
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iPhone app
Sales via mobile
increased 200% this
year, following the
launch of our first
transactional iPhone app.
It had received over
580,000 downloads by
the year end.
Perfectly edited
Our Perfectly campaign
brought together a carefully
edited collection of the
iconic quality wardrobe
staples that set M&S apart.
Each ad offered easy
style advice, showing
different ways to wear
these key items.
New Home
concept
With clearer
segmentation and a
more multi-channel
approach our new
M&S Home concept
drove a reappraisal
of the offer. The
new format is now
featured in 33 stores.
Castle Donington
Our fully mechanised
900,000 sq ft e-commerce
distribution centre is the
UK’s largest. It has the
capacity to process and
ship up to a million products
per week to customers’
homes and M&S stores
across the country.
Golden Bell
The Shanghai region is
one of our strategic
international markets. We
expanded our presence
here with the opening of
our 4,500 sq m flagship
store at Golden Bell Plaza
– one of the region’s most
popular shopping
destinations – giving us a
total of 14 stores.
New
Reaching more
customers
We are extending
our reach across
new and existing
markets through our
online development.
Following launches in
Germany, Spain,
Austria and Belgium,
we’re now online
locally in ten markets
and deliver to over
80 countries.
45%
Responsible
Retailer of the Year
In recognition of the scale
of our eco and ethical
programme’s
achievements, M&S was
named Responsible
Retailer of the Year at the
World Retail Awards in
September 2012.
Zero waste to landfill
We continue to work at
reducing the amount of
waste produced within the
business. Working closely
with our contractors, we
fulfilled our commitment
of sending no waste to
landfill from our UK
stores, office,
warehouses and
construction activities.
0
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Performance
against our plan
Key Performance Indicators
Financial performance
Group revenue
£10.0bn
1.3%
£m
UK
International
Total
09/10
8,567.9
968.7
9,536.6
10/11
8,733.0
1,007.3
9,740.3
11/12
8,868.2
1,066.1
9,934.3
Underlying Group profit before tax
Group profit before tax
Underlying earnings per share
£665.2m
5.8%
£m
UK operating profit
International operating profit
12/13
8,951.4
1,075.4
10,026.8
Net finance costs
Underlying Group profit
before tax
09/10
701.2
142.7
(149.3)
694.6
10/11
677.9
147.0
(110.6)
714.3
11/12
676.6
133.4
(104.1)
705.9
12/13
661.4
120.2
(116.4)
665.2
Group earnings per share
Return on capital employed
£564.3m
14.2%
29.2p
10.2%
11/12 £658.0m
10/11 £780.6m
09/10 £702.7m
32.7p
6.3%
11/12 32.5p
10/11 38.8p
09/10 33.5p
15.9%
3.0%
11/12 34.9p
10/11 34.8p
09/10 33.0p
11/12 16.4%
10/11 16.7%
09/10 17.5%
Focus on the UK
UK market share
Clothing and footwear
Value
11.2%
0.4% pts
Volume
12.0%
0.3% pts
Analysis We remain the UK’s market leader in
clothing but have experienced a decline in market
share this year. We have set out a clear plan to
address our underperformance, reasserting our
quality and style credentials.
Kantar Worldpanel Clothing and Footwear share
52 w/e 14 April 2013.
UK market share
Food
Value
3.8%
Level
Average weekly footfall
UK Mystery Shopping scores
Annual space growth
20.0m
1.5%
Analysis In a competitive market, our food market
share remained level, as customers continued to
trust M&S for responsibly sourced, quality food.
Kantar Worldpanel Food and Drink
52 w/e 14 April 2013.
12/13
11/12
10/11
09/10
20.0m
20.3m
20.7m
21.0m
Analysis Visits to our stores were down slightly in
2012/13. However, this was in line with the wider
market trend, as customers increasingly adopted
a more multi-channel approach to shopping.
Concerns about rising petrol prices also impacted
footfall to stores.
Average score
81%
Analysis Mystery Shop scores remained high this
year at 81%. However, to help us be more in touch
with customers we plan to replace our monthly
Mystery Shop programme with a more regular,
in-depth customer satisfaction survey.
2.8%
Analysis As consumers’ shopping habits change, we continue to evolve our
space selectively. We expect the planned opening of new space will add c.2%
to the UK in 2013/14.
Become a leading multi-channel retailer
Multi-channel revenue
Percentage of population within a 30-minute drive of
a full line store
£651.8m
16.6%
11/12 £559.0m
10/11 £473.6m
09/10 £366.1m
93%
level
Analysis As we strengthen our multi-channel capabilities, we continue to make
progress against our target to increase sales by £300m to £500m by 2013/14.
Analysis To deliver a more multi-channel shopping experience we want to
have our stores in accessible locations and aim for 95% of the population to
be within a 30 minute drive of a full line store by 2015.
Plan A
Our operations
UK & ROI greenhouse gas emissions
Gross (000 tonnes)
UK & ROI greenhouse gas emissions
Gross tonnes per sq ft of salesfloor
Our products
Our people
Percentage of M&S products with a Plan A quality
Employee engagement scores
2012/13
569
23%
2006/07
735
2012/13
34
37%
2006/07
2012 target
54
35
2012/13
45%
14%
2011/12
31%
2015 target 50%
2012/13
78%
2%
2011/12
76%
Ongoing target 70%
Why? Reporting greenhouse gas emissions will become a legal requirement
from 2014. Reducing emissions improves efficiency and helps to respond to
the risks of climate change.
Why? Reporting greenhouse gas emissions per sq ft of salesfloor enables us to
monitor improvements in efficiency.
Why? Plan A qualities have been carefully chosen to be appealing to
Why? There is a strong correlation between high levels of engagement and
customers, improve efficiency or make our supply chains more resilient.
performance and as a result, we aim to maintain engagement levels of above
70%. We continue to use a variety of communication channels to ensure that
employees are engaged in our strategy and understand the role they play.
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Key Performance Indicators
Financial performance
Group revenue
£10.0bn
1.3%
£m
UK
Total
International
09/10
8,567.9
968.7
9,536.6
10/11
8,733.0
1,007.3
9,740.3
11/12
8,868.2
1,066.1
9,934.3
8,951.4
1,075.4
10,026.8
12/13
£m
£665.2m
5.8%
UK operating profit
International operating profit
09/10
701.2
142.7
10/11
677.9
147.0
11/12
676.6
133.4
12/13
661.4
120.2
(116.4)
665.2
Net finance costs
(149.3)
(110.6)
(104.1)
Underlying Group profit
694.6
714.3
705.9
before tax
Focus on the UK
UK market share
Clothing and footwear
Value
11.2%
0.4% pts
Volume
12.0%
0.3% pts
Analysis We remain the UK’s market leader in
clothing but have experienced a decline in market
share this year. We have set out a clear plan to
address our underperformance, reasserting our
quality and style credentials.
Kantar Worldpanel Clothing and Footwear share
52 w/e 14 April 2013.
Food
Value
3.8%
Level
20.0m
1.5%
Analysis In a competitive market, our food market
share remained level, as customers continued to
trust M&S for responsibly sourced, quality food.
Kantar Worldpanel Food and Drink
52 w/e 14 April 2013.
12/13
11/12
10/11
09/10
20.0m
20.3m
20.7m
21.0m
Analysis Visits to our stores were down slightly in
2012/13. However, this was in line with the wider
market trend, as customers increasingly adopted
a more multi-channel approach to shopping.
Concerns about rising petrol prices also impacted
footfall to stores.
Underlying Group profit before tax
Group profit before tax
Underlying earnings per share
£564.3m
14.2%
11/12 £658.0m
10/11 £780.6m
09/10 £702.7m
32.7p
6.3%
Group earnings per share
Return on capital employed
29.2p
10.2%
11/12 32.5p
10/11 38.8p
09/10 33.5p
15.9%
3.0%
11/12 34.9p
10/11 34.8p
09/10 33.0p
11/12 16.4%
10/11 16.7%
09/10 17.5%
UK market share
Average weekly footfall
UK Mystery Shopping scores
Annual space growth
85
80
75
11/12
12/13
2.8%
Analysis As consumers’ shopping habits change, we continue to evolve our
space selectively. We expect the planned opening of new space will add c.2%
to the UK in 2013/14.
Apr May Jun
Jul
Aug Sep Oct Nov Dec
Jan
Feb Mar
Average score
81%
Analysis Mystery Shop scores remained high this
year at 81%. However, to help us be more in touch
with customers we plan to replace our monthly
Mystery Shop programme with a more regular,
in-depth customer satisfaction survey.
Become an international company
International revenue
£1,075.4m
4.5%
11/12 £1,066.1m
10/11 £1,007.3m
09/10
£968.7m
12/13
11/12
10/11
09/10
Analysis We are continuing to transform M&S into a more internationally
focused business and are making progress against our target of increasing
international sales by £300m to £500m by 2013/14.
£1,075.4m
£1,066.1m
£1,007.3m
£968.7m
Plan A
Our operations
2012/13
569
23%
the risks of climate change.
UK & ROI greenhouse gas emissions
Gross (000 tonnes)
UK & ROI greenhouse gas emissions
Gross tonnes per sq ft of salesfloor
Our products
Percentage of M&S products with a Plan A quality
Our people
Employee engagement scores
2006/07
735
2012/13
34
37%
2006/07
2012 target
54
35
2012/13
45%
14%
2011/12
31%
2015 target 50%
2012/13
78%
2%
2011/12
76%
Ongoing target 70%
Why? Reporting greenhouse gas emissions will become a legal requirement
Why? Reporting greenhouse gas emissions per sq ft of salesfloor enables us to
from 2014. Reducing emissions improves efficiency and helps to respond to
monitor improvements in efficiency.
Why? Plan A qualities have been carefully chosen to be appealing to
customers, improve efficiency or make our supply chains more resilient.
Why? There is a strong correlation between high levels of engagement and
performance and as a result, we aim to maintain engagement levels of above
70%. We continue to use a variety of communication channels to ensure that
employees are engaged in our strategy and understand the role they play.
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People behind the plan
Management Committee
“ We depend on our
people to make the
M&S difference. I’d
like to thank all our
employees for their
hard work, enthusiasm
and commitment,
in what has been a
challenging year.”
Marc Bolland
Chief Executive
This year we strengthened our
Management Committee in order to
sustain momentum in the delivery of our
plan. Our executive team is ably
supported by a group of high calibre
individuals, whose credentials have been
earned both within M&S and externally.
I’m proud of the team that is driving our
transformation of M&S forward.
The dedication and enthusiasm of all our
people drives innovation across M&S
and upholds the high standards of
quality and service our customers
expect. Their expertise and commitment
was increasingly acknowledged and
appreciated by our customers this year.
Each employee plays a part in keeping
M&S special and I offer my sincere
thanks for all their efforts.
Marc Bolland
Chief Executive
John Dixon
Executive Director,
General Merchandise
Steve Rowe
Executive Director,
Food
Steven Sharp
Executive Director,
Marketing
Our new team listened
carefully to customers
and acted decisively in
response to their
comments. We are
reasserting our style
credentials and have
created a confident,
edited collection of the
latest looks for the new
Autumn/Winter season.
We are also reasserting
our quality credentials,
with a renewed focus
on delivering beautifully
made clothing with a
flattering fit.
In a year when trust
has never been more
important, we
continued to deliver the
exceptional quality
food customers expect
from M&S. Whilst they
continued to depend
on us for celebrations,
we know that great
food can make any
occasion special. So
we brought M&S’
delicious food to the
heart of everyday
occasions – helping
customers do more of
their weekly shop with
us and inspiring them
with new ideas.
The unique level of
trust our customers
place in the iconic M&S
brand has made it one
of our strongest assets.
Keeping in close touch
with customers
enables us to
understand what
matters most to them.
With such a broad
customer base, it’s
important that we
ensure our campaigns
stay relevant and
inspiring – highlighting
the fact that, at M&S,
we offer something for
everyone.
Alan Stewart
Chief Finance Officer
This year we
maintained our focus
on careful cost
management across
the business and
continued to look for
new, more efficient
ways of doing things.
We continued to invest
in the transformation
of M&S into an
international, multi-
channel business and
we are changing our
infrastructure to create
a robust platform for
long-term sustainable
growth.
Laura Wade-Gery
Executive Director,
Multi-channel
E-commerce
Consumers’ shopping
habits are changing
and we’re changing
with them. We
continued to provide
new and exciting ways
for our customers to
browse and buy,
showcasing the very
best of M&S’ ranges
and making more
product available. By
creating user-friendly
experiences that are
quick, convenient and
inspiring, we’ve made it
easier for customers to
shop in the way they
want with M&S.
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Andy Adcock
Trading Director, Food
Our priority is to give
our customers the
products they want,
when they want them.
During the year we
worked hard to
increase availability in
our Food Halls and
delivered a greater
choice of product
through better ranging
and display. These
improvements are
supported by our
informed shop-floor
employees – who share
their knowledge of
M&S Food’s quality and
innovation with our
customers.
.
Sacha Berendji
Retail Director
In a challenging trading
environment, great
customer service
matters more than ever.
We’ve worked hard to
equip our employees
with the knowledge
and skills they need to
help customers, bring
our new store format to
life and provide a great
shopping experience.
We’ve also improved
the way we obtain
customer feedback,
enabling us to
understand more of
what matters to them
and respond faster.
Patrick Bousquet-
Chavanne
Corporate Director of
Strategy Implementation
and Business
Development
Innovation is one of the
values upon which M&S
was founded. We are
constantly looking at
new and exciting ways
to enhance our offer
across our Fashion,
Home and Food
ranges. Our clear focus
on creating original
products, unique
experiences and new
global retail concepts
will ensure we maintain
our reputation for
innovation – maximising
the impact and value of
the M&S brand.
Clem Constantine
Director of Property
We aim to ensure that
our stores are in the
most convenient
locations possible for
our customers. Our
approach is to create
and develop true
community stores with
sustainability
incorporated as
standard – as
exemplified by our new
Cheshire Oaks flagship
store. Our successful
Simply Food format is
increasingly popular
and is an important
part of our estate
development
programme.
Tanith Dodge
Director of Human
Resources
We are focused on
ensuring we have the
right people with the
appropriate skills to
help us achieve our
ambitions. This
includes developing
talent and building the
right capabilities across
the business to steer
M&S in the future. We
use a variety of
communication
channels to maintain
dialogue and ensure
that each employee is
engaged in our plan
and understands the
role they play.
Steve Finlan
Director of International
Operations
We are now operating
as a more international
business. Combined
with central planning,
we use local
knowledge of customer
preferences to inform
our buying decisions.
This has enabled us to
deliver a clearer and
more appropriate
product offer. Improved
visual merchandising
and our new store
format are also creating
a better, more
consistent shopping
experience for M&S
customers around the
world.
Dominic Fry
Director of
Communications and
Investor Relations
As we continue to
execute our plan for
M&S, we want all our
stakeholders to be
part of the journey.
We stepped up our
levels of shareholder
engagement this year,
enabling many of our
investors to see at first
hand the progress
we’re making, both
in the UK and
internationally. We
are also committed to
increasing the amount
of company information
we make available online
to our stakeholders.
Jan Heere
Director of International
We have a clear plan to
drive growth in our
priority markets. Our
multi-channel approach
enables us to apply
exactly the right model
to each market,
building positions of
authority wherever we
operate and
strengthening
relationships with our
franchise partners. Our
plan is being delivered
by a best in class
international team
comprising externally-
sourced talent and
proven M&S expertise.
Dirk Lembregts
Director of Supply
Chain
M&S’ supply chain is
the backbone of our
business. This year we
continued our
investment in the
creation of more
efficient operations
across the M&S supply
chain. These will help
us meet – and exceed
– our customers’
heightened
expectations as the
business continues to
grow. The progress we
have made this year will
deliver significant
improvements in the
way we serve our
customers.
Nayna McIntosh
Director of
Store Environment and
Product Presentation
Amanda Mellor
Group Secretary and
Head of Corporate
Governance
Our new-format store
environment is
designed to inspire and
delight our customers,
prompting them to take
a fresh look at M&S.
Our new in-store trend
zones – showcasing
the season’s latest
looks – give a great first
impression and we use
elements of theatre to
enhance the look of our
Food Halls. Our new
M&S Beauty and Home
departments have
further strengthened
our position as a
specialist retailer.
We believe that trust is
established and
maintained by doing
things in the right way.
At M&S, effective
governance derives
from a balance
between leadership
and collaboration – and
we work hard to ensure
this applies to all the
decisions we make.
Trust is cemented
further through
increased transparency
and we have continued
to become more open
– both in the
information we provide
and the way in which
we report it.
Darrell Stein
Director of IT
Our IT infrastructure
supports the whole of
M&S, touching every
employee across the
business. This year we
improved processes
and drove greater
efficiency through the
business, embedding
new Food and HR
systems. We continue
to create solutions that
give us the necessary
flexibility to meet our
strategic goals, and will
launch new General
Merchandise systems
and a multi-channel
platform in the year
ahead.
Marks and Spencer Group plcOverviewStrategic reviewFinancial reviewGovernanceFinancial statements and other information Our brand
Spotlight on products
Our Autumn/Winter campaigns were
both aspirational and inclusive –
showcasing our products using a
representative range of models of
different shapes, sizes and ages. With
the spotlight firmly on our product offer,
the campaign helped inspire customers
as to how they could wear the season’s
latest styles. Sales of featured lines were
three times higher compared to the
corresponding four weeks of the 2011 TV
campaign.
Our Christmas campaign continued the
theme of inclusivity – demonstrating how
M&S offers something for everyone.
Featuring the strapline The Greatest Hits
this Christmas, the campaign took
inspiration from the popular Christmas
compilation album format and used a
selection of popular tracks to highlight
the seasonal products M&S is known
and loved for – from cosy knitwear to
stylish party outfits.
Our Spring ‘Perfectly’ campaign
showcased the quality fabrics, unique
innovations and expert design that set
M&S wardrobe staples apart. Featuring
iconic pieces such as our timeless
£39.50 belted mac and a curve flattering
crisp white shirt – each ad displayed
different ways to wear these classic
items – providing stylish yet affordable
fashion inspiration.
Our Food campaigns concentrated on
the outstanding quality and innovation
that makes M&S Food famous – showing
customers exactly why they can trust
M&S for even the most important
occasions. Our delicious products took
centre stage to highlight how M&S can
offer something different and make
celebrations truly special. The miniature
Belgian chocolate hot cross buns
featured in our Easter ad sold out over
Easter weekend.
Interacting with customers
This year, we used the latest
technologies to help us create fully
integrated campaigns that reflect
customers’ changing behaviour. Our
growing social media presence and the
launch of our first mobile app helped us
further join up our different channels to
engage and inspire our customers.
“ Our brand is one of
our strongest assets;
inspiring trust from
customers.”
Steven Sharp
Executive Director, Marketing
Our campaigns demonstrate that we
are in touch with our customers –
making M&S relevant to their
changing needs. In an increasingly
competitive landscape, our marketing
activity focused on the innovation and
quality that make our products
different and special – providing a
clear reason to shop with M&S. By
better integrating our marketing
channels we helped put M&S front of
mind for customers – however they
chose to interact with us.
In touch with our customers
With disposable incomes under
continued pressure, enjoying time with
friends and family remained our
customers’ top priority. They were
determined to get the most from their
limited spend – but this was not simply
about price – customers wanted to feel
every purchase was worthwhile. As a
result, they sought inspiration from M&S
on how to make the ordinary feel extra
special and make time together more
meaningful.
With this in mind, we launched
Weekends In, a new umbrella
promotional campaign, which offers
customers a different delicious deal to
enjoy every weekend. Our iconic Dine In
offer sits under this banner, and is
alternated with deals such as Roast for
£5 and Chinese Takeaway for two –
putting M&S food at the heart of the
weekend.
Annual report and financial statements 2013
16
Food Glorious Food
In February we joined ITV’s
Food Glorious Food on a
mission to find the nation’s
favourite recipe. Hosted by
Carol Vorderman, a team
of experts travelled the UK
in search of the very best
home cooked recipes.
Chosen by viewers, the
winning dish was Rahila
Hussain’s Fragrant White
Chicken Korma, which was
sold exclusively by M&S,
with 40p from each sale
going to Great Ormond
Street Hospital.
Integrated campaigns
We provided a compelling
reason for the many
customers who watch TV
with a mobile or iPad in
hand to interact with M&S,
with a TV ad that offered the
chance to win £5,000 by
naming the artists in our
Christmas campaign. Over
32,000 customers entered
via social media, causing
#greatestHits to become the
second highest global
trending phrase on Twitter.
Strategic reviewFocus on the UKMarks and Spencer Group plc Annual report and financial statements 2013
17
Womenswear
Our Autumn/Winter
campaign used models
of a broader representation
of shape and size to give
customers inspiration.
M&S Bank
With over 25 years in
personal finance, the
creation of M&S Bank was
a natural step. Combining
exclusive M&S rewards,
a transparent account
structure and the
convenience of store
opening hours – M&S
Bank was designed
around our customers.
TRUST
Thanks a million
CuStOmeR inSiGHt
“ I want to see exactly
how I can wear the
season’s latest styles.”
Achieving a million Facebook fans
highlighted the iconic status of M&S
and the unique level of engagement
we have with our customers.
We celebrated by giving every fan
a penny to donate to charity and
publicised the milestone with a
specially commissioned art installation
made from a million pennies
borrowed from the Bank of England.
Looking ahead
In the year ahead we will stay in
ongoing dialogue with our customers
to ensure we are in tune with their
changing priorities. We will continue
to provide new and compelling
reasons to shop with us by
highlighting the unique products
available only at M&S.
Shwop shop
Inspiring a new generation of
Shwoppers to see fashion
and sustainability as one, we
launched the first-ever
pop-up Shwop shop at our
Marble Arch store. Featuring
items including rare vintage
M&S pieces donated by the
public and celebrities alike,
the two-day event raised
£4,000 for Oxfam.
Discover more online
Strategic reviewFocus on the UKMarks and Spencer Group plcOverviewStrategic reviewFinancial reviewGovernanceFinancial statements and other information General Merchandise
Responding to customer feedback, we
started to reassert our quality credentials,
focusing initially on upgrading the
products we’re famous for. Our classic
£6 white tee shirt benefited from improved
styling, better fabric and superior
finishing, resulting a sales uplift of 15%.
We want customers to be confident that
regardless of fabric, cut or sub-brand,
they will find great fitting styles. So this
year we reduced the number of block
sizes used, creating more consistent
sizing across all our ranges.
Womenswear
2012/13 was a challenging year for
Womenswear, which nevertheless
delivered good performance in individual
categories. We bought with authority into
our advertised lines, selling over 46,000
of our featured M&S Woman £49.50
Military Coat.
We bought with greater confidence into
the seasons’ key trends and customers
enjoyed our interpretations. We sold over
115,000 items from the 60s-inspired
Monochrome trend and almost 350,000
pieces from our feminine, pastel Dolls
House collection.
We launched Twiggy for M&S Woman in
April. Offering versatile, flattering fashion
and attention to detail, it received a
positive reaction from customers.
Our Autograph range exemplifies the
best of M&S, with designer-inspired
sophistication and outstanding quality.
The range performed strongly this year
with sales up 4%. Our Indigo Collection
of casual, easy-to-wear outfits performed
well and comfortably sits as our second
biggest brand behind per una.
In March we appointed fashion expert
Hilary Alexander as Fashion Consultant
to per una. Her involvement includes
‘Hilary’s Edit’: a selection of key seasonal
outfits and an ‘Ask Hilary’ column on our
website addressing customers’ fashion
dilemmas.
Better editing of womenswear helped
strengthen the identity of our sub-brands
and reinforce our fashion credentials.
Our new store format features more
statement mannequin displays, and our
online Style Edit (see page 27) offers
easy-to-follow outfit inspiration.
“ We’re reasserting
our quality and style
credentials to give
all our products the
M&S difference.”
John Dixon
Executive Director,
General Merchandise
This year we took decisive action to
address the performance of our
General Merchandise business;
bringing in a new team, listening
carefully to our customers and
improving our operational execution.
This action, coupled with a renewed
focus on quality and style, resulted in
early signs of improvement towards
the end of the year.
Overview
Over the last 12 months market
conditions were challenging and highly
promotional. We protected margins, with
targeted offers that demonstrated great
value. However, we retained the flexibility
to respond to market conditions, with
compelling online and category
promotions.
Early in the financial year, our
performance was impacted by
merchandising issues. We improved our
processes, tightened stock management
and changed the way we allocate stock
to stores. We also aligned our buying
procedures more closely with our
marketing activity – delivering record
availability on advertised lines.
In the autumn, we restructured the
business, creating four business units
with realigned responsibilities and
greater accountability. Combining
externally sourced talent with proven
M&S expertise, the new leadership team
has already made operational
improvements and has focused its time
on really understanding what our
customers want from M&S.
Annual report and financial statements 2013
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GeneRal meRCHanDiSe HiGHliGHtS
General merchandise revenue
£4.1bn
2.4%
Womenswear market share
9.9%
0.5% pts
Menswear market share
11.6%
0.4% pts
Kidswear market share
6.4%
0.4% pts
Lingerie market share
26.8%
0.7% pts
Kantar Worldpanel Clothing and Footwear
– value market share 52 w/e 14 April 2013
CuStOmeR inSiGHt
“ I want well
constructed
clothes that are
made to last,
with a flattering
fit and style.”
Rosie for Autograph
Our collaboration with Rosie
Huntington-Whiteley became
our best selling Autograph line
ever. Soft, sophisticated and
ultra-feminine, the new Rosie
for Autograph collection takes
its inspiration from gorgeous
rose blooms and Rosie’s love
of vintage textiles. Made from
sumptuous silk and delicate
French-designed lace, we sold
over 430,000 items this year.
Strategic reviewFocus on the UKMarks and Spencer Group plc Annual report and financial statements 2013
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Fashion credentials
In partnership with Vogue,
we put together the ultimate
go-to Spring wardrobe based
around five easy-to-wear
pieces. This capsule collection
focused on exceptional
quality and timeless style to
create a simple, transitional
mix and match wardrobe.
AS SEEN IN
Beauty
We launched M&S Beauty
in 55 stores this year –
using multi-channel activity
to bring it to life. The carefully
edited collection includes
prestige global brands and sales
from our new Beauty departments
were 25% ahead of other stores.
British Fashion Council
‘Best of British’ is our exclusive three-
year partnership with the British Fashion
Council, celebrating British fashion,
home-grown talent and sustainability.
As part of the initiative, two new
luxurious clothing collections will feature
a combination of British heritage,
sourcing and production.
QUALITY
Our most
sustainable suit ever
Our Savile Row Inspired
suit not only features
impeccable design
credentials courtesy of
Richard James, it has a
fantastic eco signature
too. Made from fully
traceable organic wool
and incorporating a
lining made from
recycled plastic bottles,
it’s one of the greenest
garments we’ve ever
made. It even carries
a unique QR code so
customers can learn
more about its green
credentials online.
Discover
more online
Strategic reviewFocus on the UKMarks and Spencer Group plcOverviewStrategic reviewFinancial reviewGovernanceFinancial statements and other information General merchandise continued
Annual report and financial statements 2013
20
Lingerie & Beauty
We continue to lead the UK market in
lingerie. Our customers shop with us
for everyday essentials, underwear
solutions and special occasion glamour.
Working in partnership with our world
class suppliers we introduced compelling
value, quality and style for
all customers. We saw strong sales of
our two pack Limited Collection bras at
£16 and our French-designed, vintage-
inspired Autograph lace collection at
£22.50. Innovation remains a key feature
of M&S Lingerie. Successes include the
extension of our Heatgen™ Thermal
range, up 33% and our Perfect Fit Bra,
up 72%.
The merchandising teams focused
on improving availability and reducing
lead times, enabling us to improve
performance in areas such as sports
bras, up 19% and dressing gowns,
up 12%.
Menswear
We remain the UK’s number one
menswear retailer and saw strong sales
in heritage departments such as coats
and outerwear, up 14% and nightwear
up 3%. Customers enjoyed our
interpretation of the British heritage trend
and formal jacket sales rose 6%.
Improved style helped us strengthen our
position in growth areas, with footwear
and accessories sales up 2%. M&S is
renowned for its tailoring and we have a
suit for every age and budget – from our
great value £99 suit to our Savile Row
Inspired range.
Kidswear
Parents turn to M&S for great value
kidswear they can trust. We experienced
our best ever year in schoolwear, selling
8.4 million items, up 8% on last year.
Independent tests rated our schoolwear
as the best quality on the high street.
With family celebrations a priority for
customers, we offered great value on our
occasion wear. Our Spring 20% off
promotion proved popular ahead of the
wedding season, with sales of boys’ suits
and girls’ bridesmaid dresses up 33%.
Home
Despite the static housing market
furniture sales rose 2%, driven partly by
improved quality and faster delivery
times on a number of key lines.
In August we launched our new in-store
Home concept, which transformed the
way we showcase our products. It also
embraces technology to offer greater
choice and make it easier to shop our
ranges. The new concept is now in 33
stores and they are performing well, 10%
ahead of non-concept stores.
Looking ahead
We are reasserting our commitment
to delivering the M&S difference on
every product. We want our clothing
to inspire customers to look and feel
their best, exceeding their
expectations around fabric, fit and
finish. With a new team in place, we
are reinvigorating our style
credentials and will deliver confident
edited collections of the seasons’ key
styles, along with the quality
wardrobe staples we’re famous for.
Autumn/Winter Collection
We are refocusing our clothing strategy
on the values that made the M&S brand
famous – putting quality and style back
at the heart of everything we do. Over
the last six months we have undertaken
extensive research; listening carefully to
our customers’ views and building on
our heritage to help us rediscover the
fashion DNA that makes M&S special
and relevant.
STYLE
With an initial focus on womenswear,
our new clothing strategy encompasses
the following:
– an investment in quality that includes
upgrading to more premium fabrics,
using product innovation to deliver a
better fit and finish, whilst maintaining
prices for customers;
– clearer and more compelling
sub brands, with the launch of M&S
Collection;
– confident edits of the key trends for
each season, that see M&S lead the
way;
– improved fashion and design
credentials, including a new Best of
British range.
Ultimately, we want to deliver beautifully
made aspirational clothes that inspire
our customers. They will begin to see
these improvements from late July,
when our new Autumn/Winter
collection launches in store and online.
Complementing the quality wardrobe
staples will be an edit of the key trends,
each designed to work for the M&S
customer in a considered and wearable
way. To share the progress we have
made, we have included an exclusive
shareholder preview of the collection
with this report.
Strategic reviewFocus on the UKMarks and Spencer Group plc Food
Quality, trust and provenance continue to
underpin everything we do – from our
relationships with suppliers to the
products we sell. In a year when the
industry was affected by supply chain
issues, our commitment to provenance
served us well, as customers continued to
trust M&S to deliver responsibly sourced,
quality produce. All our beef, pork,
salmon, poultry and in-season lamb
is sourced from the UK and the Republic
of Ireland.
Our commitment has been acknowledged
by numerous awards this year – including
the Ethical Corporation Responsible
Business Supply Chain Excellence award.
Quality at great value
In a highly competitive market we
launched Simply M&S: a range of 700
everyday food items that offer M&S quality
at great value prices. Hundreds of prices
were lowered and new lines added to give
customers even more choice. All Simply
M&S eggs are free range, bacon is British
and all tea and coffee is Fairtrade –
underlining our uncompromising sourcing
standards. The range complements
existing lines and highlights M&S’ superb
quality and value under one clear brand.
Since launch, we have sold over 350
million products.
Our high ethical and sourcing standards
continue to set us apart from the
competition. Our standards are industry
recognised; our leading animal welfare
policies earned us the Compassion In
World Farming Good Pig Award and our
fish is recognised by the Marine
Conservation Society for best-in-class
sustainable seafood practices. Our
bespoke feeding programme provides
our Scottish Lochmuir™ salmon with
exceptional flavour and we sold
10.8 million packs of fresh and smoked
salmon this year, up 16%.
Despite 2012 being one of the wettest
years on record, we maintained supplies
of high quality fresh produce, thanks to
our collaborative supplier relationships.
We delivered the finest soft fruits
throughout the summer, including the
exclusive ‘Driscoll Diamond’ strawberry,
especially named in honour of
The Queen’s celebrations. Over the
extended Jubilee week we sold a record
one million punnets of strawberries to
customers celebrating at home.
“ Customers trust
M&S to deliver quality,
innovative food for
every occasion.”
Steve Rowe
Executive Director, Food
Our Food business delivered an
excellent performance in a challenging
market, with total sales up 3.9% to
£4.9bn. We outperformed the market
on a like-for-like basis, with sales up
1.7%, consolidating our position as
the UK’s leading high quality food
retailer. Customers trusted M&S
to deliver for the most important
occasions and our continued focus on
quality, innovation and availability –
coupled with the roll-out of our new
Food Hall format – helped us
strengthen market share.
Overview
Our market-leading innovation brought
over 1,900 new lines into our Food Halls
this year. From new international dishes to
healthy eating ranges, our innovative
products kept customers coming back
– offering greater choice and catering for
their changing tastes and priorities.
With value front of mind for customers, we
ensured our offer remained competitive
through a combination of independent
weekly price matching and well targeted
offers. We offset the commodity price
rises in the market, thanks to stronger
management of stock and promotions.
The introduction of our Simply M&S range,
coupled with everyday promotions such
as our 3 for £10 offer on meat and fish,
helped customers get even better value
from their weekly shop. Despite limited
budgets, customers were determined to
enjoy time with friends and family and
make the most of special occasions. Our
iconic Dine In deal supported this desire
to enjoy restaurant quality food at home
and proved consistently popular.
Annual report and financial statements 2013
21
FOOD HiGHliGHtS
Food revenue
£4.9bn
3.9%
Market share
3.8%
level
Number of new lines
1,900
Simply great value
Simply M&S products are
independently price checked every
week to ensure the range is
competitively priced. The easy to
identify packaging features a
shopping list style labelling and is
mostly transparent so customers can
see the great quality of the products.
A summer of celebration
With several opportunities to
celebrate during the summer, we
launched over 200 British-inspired
lines. We sold over 800,000 tins of
Diamond Jubilee biscuits worldwide
and in the first week of the Olympics
we sold over one million packs of
sausages and 350,000 burgers.
Strategic reviewFocus on the UKMarks and Spencer Group plcOverviewStrategic reviewFinancial reviewGovernanceFinancial statements and other information Food continued
Annual report and financial statements 2013
22
A record Christmas
We launched over 250 new Christmas
lines and had our best ever week for party
food in the lead-up to Christmas, selling
2.2 million packs. We sold almost
1.1 million fresh turkeys, crowns and
joints and over 24 million mince pies.
DELICIOUS
Healthy eating
CuStOmeR inSiGHt
“I want M&S to
make it easy
for me to enjoy
delicious healthy
food. I don’t
want it to feel
like a diet.”
We supported customers’
healthy eating choices,
adding new lines to our
market-leading Fuller Longer
and calorie-controlled count
on us™ ranges. We also
launched our Delicious &
Nutritious range, inspired by
vibrant cuisines from around
the world. All meals contain
health boosting ingredients
such as seeds and
wholegrains.
Fresh produce whatever the weather
As wet weather threatened crucial
Christmas crops, we worked closely
with our suppliers. The Haines family –
who have supplied M&S for 30 years
– were able to protect the crop on their
Cotswold farm thanks to its relatively
sheltered position, helping us ensure we
had plenty of sprouts for our customers.
Sales of sprouts this festive season were
up 100%.
Strategic reviewFocus on the UKMarks and Spencer Group plc We trace it so you can trust it
Good food starts with good
ingredients – and the best ingredients
come from the best farmers. Every
farm supplying us with fresh meat is
known to us and independently
audited to ensure the highest
standards. The tests on our products
told us what we already knew: where
it says so on the packaging, our
products contain 100% beef.
Discover more online
Cook with M&S
We relaunched our Cook and Stir Fry
ranges this year and stocked more
key ingredients to help customers
cook from scratch. Designed to take
the hard work out of preparing a
delicious home-cooked meal, we
introduced our new stir-fry shop,
featuring a wide variety of fresh and
exciting ingredients. We have sold over
500,000 items since launch.
Annual report and financial statements 2013
23
Innovation and choice
M&S is recognised for pioneering product
innovation and this year we continued to
lead the way. We offered customers even
more choice through constant innovation
and first-to-market products, launching
1,900 new lines and refreshing 25% of our
entire range.
We strengthened our position as market
leader in international recipe dishes, with
the launch of España – the high street’s
first range of contemporary Spanish
cuisine, which uses authentic ingredients
such as Oloroso sherry and pimento de le
vera. We also introduced a new Modern
Asian range; inspired by the continent’s
aromatic, vibrant flavours. Our most
popular dish is the Wok Beef Noodles
selling over 210,000 items since launch.
Our product developers responded to the
latest restaurant trends, with a number of
high street firsts. We received industry
recognition for our Runny Scotch Egg;
developed using the complex sous vide
technique, it contains a perfect runny
centre. Customers loved our twist on this
classic British favourite, with over 165,000
sold to date. Capitalising on the Dim Sum
trend, we introduced delicious Chinese
steamed pork buns in time for Chinese
New Year celebrations in February. Made
with succulent, slow cooked shredded
pork in hoisin and soy sauce, we sold
over 20,000 packs.
Trusted for the most important
occasions
When it matters most, customers turn to
us for something truly special. Our
reputation for innovation, coupled with
exceptional quality, means M&S has
become a destination of choice for
customers looking to make celebrations
more memorable. This helped us deliver a
record Christmas, with M&S
outperforming the market in the two key
festive trading weeks, followed by our
best ever Easter week.
We also provided customers with
inspirational gifts and treats to mark
special occasions. We sold over
1.5 million Valentine’s Day chocolates,
up 10% and sold over two million
bouquets and plants in the week before
Mothers Day, up 6.5%. Our online flower
ordering business continues to grow, as
customers enjoyed the convenience of
gifting on the go.
Our online Food to Order offer makes
entertaining even easier, with party-sized
portions and helpful menu suggestions.
Our Christmas Food to Order proved
extremely popular, with over 400,000
orders placed during the festive period,
up 5%. Our Wine Direct business was up
25% this year as more customers ordered
our award-winning wines and
champagnes by the case for delivery
straight to their door.
Service and speciality
Our new store format has now been
applied to over two-thirds of our Food
Halls, improving the shopping experience,
providing elements of theatre and
reinforcing our position as a specialist
food retailer. Selected stores now include
delis and we have rolled out artisan
bakeries to 330 stores, including 161
Simply Food stores. Bakery sales are up
20% as a result.
This improved in store experience, was
enhanced by even better customer
service. Our Customer Ready Food
initiative gave employees ownership of
zoned areas within the Food Halls –
ensuring they remained visually appealing
and well stocked. New videos and
learning resources helped improve
employees’ product knowledge, enabling
them to provide expert advice on the
latest food innovations and trends.
Through our ongoing supply chain
improvements and the implementation of
our new space, range and display system,
we further improved availability and we
remain on track to deliver our 5%
improvement target by 2013/14.
Looking ahead
The market will remain challenging but
through our commitment to quality
and innovation, we will continue to
provide compelling reasons to shop
with M&S. We will offer customers
even greater choice, making better
use of our existing space and further
improving availability. In the year
ahead, we will concentrate on
providing more of what we know our
customers love, with the aim of
making every food moment special.
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UK stores
Our stores remain the most popular
way to shop with M&S, serving over
20 million customers every week.
Over two-thirds of our UK stores have
now been transformed with our new
store format, which provides a more
inspiring and interactive shopping
experience. Throughout the year we
continued to carefully evaluate the
geography of our UK store portfolio,
ensuring that we are positioned in the
best and most convenient locations
across high streets, retail parks and
out-of-town developments.
UK store portfolio
This year our new store openings and
extensions added 410,400 sq ft of new
space. We opened a number of larger
stores in retail parks, including Crystal
Peaks, Peterborough, Milton Keynes,
Ashton Moss and Newport. We also
continued our modernisation
programme, undertaking major updates
in 19 stores this year including
Camberley and our flagship Marble
Arch store.
In August we opened Cheshire Oaks, our
new 151,000 sq ft flagship store for the
North West, second in size only to our
Marble Arch store in London. Serving a
catchment area of over 1.3 million
people, it showcases the very best of
M&S store design, multi-channel
innovation, service and environmental
standards under one roof.
With outstanding green credentials,
Cheshire Oaks is also a true community
store. We engaged with local groups
right from the start; with educational site
visits and a focus on local investment,
we ensured key stakeholders remained
informed of plans and progress
throughout the build. The store created
over 350 new jobs in the region and
attracted over 21,000 visitors on opening
day. The store has received excellent
customer feedback.
New look stores
Last year we began the roll-out of our
new store format, designed to make our
stores easier to shop by improving
navigation and making better use of
space. Our new format features clearly
defined areas to reflect the distinctive
personalities of our clothing sub-brands
and improved product presentation.
The format also brings elements of
theatre to our Food Halls, such as artisan
bakeries and delis, to reinforce our
‘speciality’ positioning and showcase our
fresh food to its best advantage. This
first phase has been rolled out to 337
UK stores.
In the first half of the year we launched
the second phase of this programme,
including new look Beauty and Home
departments. The new format is helping
customers reappraise the M&S offer and
these stores are performing ahead of the
rest of the chain.
Service in store
Great service is an essential part of
delivering an inspirational shopping
experience and this year we continued to
invest, with the launch of our new ‘In
Touch’ programme (see page 30).
Designed to provide employees with the
knowledge and resources required to
respond to our customers’ changing
needs, the in-store training module has
now been rolled out to all stores
including Franchise and Outlets.
Our Mystery Shop programme has
helped ensure we continue to deliver the
very highest standards of service and
this year’s scores remained high at 81%.
However, as part of our aim to be more
in touch with our customers, we decided
to replace our monthly Mystery Shop
programme with a more regular, in-depth
customer satisfaction survey. Under this
new format, one in every ten store
customers is invited to take part in an
online survey through their till receipt and
incentivised by a prize draw. We are
currently receiving over 12,000
responses every week.
Technology in stores
This year our business unit, store design
and e-commerce teams collaborated to
make our stores work harder and bring
the M&S multi-channel experience to life
in our stores.
Using the latest technology, we are
offering improved convenience, more
inspiration and greater choice. We now
have a total of over 250 Browse and
Order points across 82 stores – enabling
customers to shop more of the M&S
product catalogue. Stores are now
equipped with around 1,500 iPads,
enabling employees to offer a more
personalised service and order products
for customers on the spot – either for
home or free-to-store delivery.
Annual report and financial statements 2013
24
uK StOReS HiGHliGHtS
Total UK portfolio
766
Premier
12
Major
59
High street
228
Outlet
48
Simply Food (owned)
176
Simply Food (franchised)
243
CuStOmeR inSiGHt
“ Great service
means friendly,
helpful and
knowledgeable
employees – who
are available and
able to answer
my questions.”
Trend zones
Customers told us they were
looking for more inspiration
and reasons to spend in
store. Responding to this, our
visual merchandising teams
created trend zones, bringing
products to life to show how
outfits can be put together
and enabling customers to
quickly and easily recognise
items from our advertising
campaigns.
Strategic reviewFocus on the UKMarks and Spencer Group plc Quicker and more
convenient
Following a successful trial,
we rolled out contactless
payment across all our UK and
Republic of Ireland stores.
Customers are enjoying the
speed and convenience of the
payment method and 14% of
card transactions under £20 are
now completed by contactless.
Annual report and financial statements 2013
25
Our greenest store
Cheshire Oaks includes the
latest sustainable building
features such as a 100% FSC-
certified engineered softwood
timber roof, hemp and lime
external wall panels and
harvested rainwater to supply
toilet facilities and irrigate the
store’s ‘living’ greenwall.
Discover more online
SERVICE Customer satisfaction survey
The new format provides us with regular, real-time
insight into the things that matter most to customers.
They are invited to provide verbatim comments
under the topics – ‘friendly and helpful’, ‘available to
help’, ‘knowledge’, and ‘quick to pay’. Stores can
access their scores via an online portal – putting
them more in touch with the customers they serve.
Simply Food
Customers appreciate the convenience
of our Simply Food store format and
this year we opened nine new M&S
owned sites. Seven of these were in
prime out-of-town locations with car
parks and many of the larger stores
feature a bakery, deli or café as well as
our Shop Your Way order and collection
service. We plan to maintain the rate of
new store openings in the coming year.
Looking ahead
Our priority remains to deliver an
inspirational shopping environment
for our customers in the most
convenient locations possible. The
coming year will see us complete the
roll-out of our new look store format.
This improved product presentation
will be supported by more
knowledgeable and informed
employees. We will continue to cater
for our customers’ changing
shopping habits – working closely
with our digital team to deliver a more
integrated experience.
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Annual report and financial statements 2013
26
multi-CHannel HiGHliGHtS
Revenue
£651.8m
16.6%
Weekly site visitors
3.6m
18%
Multi-channel Home Hub
Our new Home Hub maximises
our selling space, with touch
and feel sample displays to
showcase items such as
towels, fabrics and upholstery.
Customers can then browse
and order from the full range
via iPads and large format
touch screen points. The
format also features interactive
buying guides, such as ‘Your
Perfect Night’s Sleep’, which
helps select the ideal duvet.
INNOVATION
Multi-channel
As explained on page 24, we made more
of our products available to our
customers through the introduction of
new Browse and Order points to our
stores and by equipping more store
employees with iPads. Large digital
screens play catwalk videos and our new
Home and Beauty departments use
technology to inspire customers and
provide tailored advice and guidance.
In May 2012 we relaunched our mobile-
optimised site to deliver an even richer
browsing and shopping experience. We
launched our first ever transactional
iPhone app in July 2012 and created a
new M&S Home iPad app, which brings
our home catalogue to life in an easy-to-
shop format. As a result, mobile and
tablet sales increased by almost 200%
and now account for 18% of M&S.com
sales.
As explained on page 16, we are tailoring
our marketing campaigns to reflect
customers’ increasing use of mobile and
the completed roll-out of free WiFi has
made it even easier for them to browse
and buy from their devices in our stores.
Building a world class infrastructure
To fulfil our multi-channel ambitions we
need to be an agile business, with the
right infrastructure in place and the ability
to innovate with pace. This year we
made real progress and in February
2013, we launched a new Digital Lab
function to help us move faster in
developing first-to-market technologies
for e-commerce, in-store technology and
digital marketing. Our team of specialists
test emerging retail technologies, build
prototypes and develop concepts for
implementation on a larger scale across
M&S.
Our new 900,000 sq ft e-commerce
distribution centre at Castle Donington
opened in May 2013. Located at the
heart of the UK’s road and rail network,
the fully automated site will help us to
better serve customers across the
country, with further improvements
expected to delivery times and product
availability in the year ahead.
During the year we began to introduce
elements of our new multi-channel
platform. The full new site will launch in
Spring 2014, showcasing the best of
M&S via a fashion-forward online
environment and offering a crisp,
easy-to-shop experience.
“ We’re making it
easier for customers
to shop the way they
want with M&S.”
Laura Wade-Gery
Executive Director,
Multi-channel E-commerce
This year we saw a good M&S.com
performance, with sales up 16.6%
despite tough comparatives. Over the
last 12 months we have made the
M&S shopping experience easier and
more convenient – as well as more
inspiring – for our customers, however
they choose to shop with us. We are
applying multi-channel thinking right
across the business and are building
a world class infrastructure to help us
fulfil our customers’ expectations.
Throughout 2012/13 more customers
opted for the convenience of online
shopping. We now have over 3.6 million
weekly visitors to our UK site, thanks to a
combination of improved navigation, more
style advice and greater choice, including
40% more online product exclusives.
Our online business now accounts for a
greater proportion of our General
Merchandise sales at 13% compared to
10.9% last year. Some 40% of all dresses
were sold online and one in four M&S
suits was sold through our website.
Now available in 476 stores, our Shop
Your Way service allows customers to
order and collect their shopping in the
way that suits them best. This year we
improved the offer with the launch of free
next day delivery to our stores. The
service grew in popularity, with over 54%
of M&S.com orders being placed or
collected in store.
New ways to shop
Expanding M&S.com not only gives us
more reach, but drives more spend from
our customers. By providing new ways to
access products we attract slightly
younger customers and extract more
value from our stores.
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Annual report and financial statements 2013
27
Reaching more
customers
Our international multi-
channel expansion continued
this year, and by April 2013
we had transactional websites
in ten markets. We further
improved our multi-channel
offer, with fully mobile
optimised sites and through
the introduction of Shop Your
Way to our French and Irish
markets.
CuStOmeR inSiGHt
“ I expect to be
able to shop
whenever and
wherever I want.”
Mobile app
Downloaded over 580,000
times since launch, our
iPhone app puts a whole
store’s worth of product in
our customers’ pockets.
It reached the top position
in iTunes Free UK Lifestyle
Apps and we continue to
add new features, such
as M&S Live, which allows
customers to generate
exclusive video content
from printed images
using augmented reality
technology.
INNOVATION
INNOVATION
More inspiration
Online is not simply a
place to buy, it’s where
customers come to
find inspiration and
advice. Launched in
November 2012, the
new Style Edit section
of our website provides
editorial features and
videos on the seasons’
latest trends, as well as
carefully selected outfit
ideas for every
occasion.
Looking ahead
The customer remains at the heart of
all our multi-channel initiatives and
we must continue to respond to their
changing needs, as we aim to help
them truly shop their way with M&S.
2013/14 is a milestone year in our
multi-channel journey. The launch of
our new website platform, coupled
with a fully operational distribution
centre, will significantly enhance our
capabilities and help make M&S.com
the flagship experience for our
customers – showcasing our entire
product range, bringing the M&S
brand to life and offering a brilliant
buying experience.
Virtual makeover
Our virtual makeover counter
uses facial recognition
technology to enable customers
to upload a photo and
experiment with the latest beauty
trends. Featured both online and
in store, it has attracted more
than 200,000 visitors to date.
Discover more online
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Annual report and financial statements 2013
28
International
inteRnatiOnal HiGHliGHtS
International revenue
£1.1bn
4.5%
Sales in our International business
were up 4.5% to £1.1bn this year,
reflecting strong growth in our priority
markets. However, operating profit
was down 9.9%, due to the impact of
currency translation, prevailing
macroeconomic conditions and
start-up costs in key markets. We
now trade in 51 territories from 418
stores totalling 5.4m sq ft and have
further extended the reach of the
M&S brand through the launch of
new in-country websites.
Building a more international
company
Our international strategy is built around
a clear geographic focus, supported by
the right business model for each
market. We are growing our presence in
India, China and the Middle East region
including Russia and Turkey, as well as
developing a multi-channel proposition
to serve customers in Western Europe.
This approach is being delivered by a
best-in-class international management
team, comprising high calibre external
talent, M&S experience and valuable
local expertise.
We began work to improve our
international buying processes –
combining our central planning with local
market knowledge to deliver a more
tailored product offer that better reflects
local seasonality, culture and customer
profile. Supply chain improvements are
enabling us to deliver product to our
international stores more efficiently. We
trialled a new approach to product
cataloguing across our 46 Czech stores,
developing a clear customer profile for
each store and adapting the product
range accordingly. We’re extending the
use of this model to more stores.
Our specialist visual merchandising
team, combined with the roll-out of our
new store format to selected international
stores, is helping us deliver a more
aspirational and consistent store
environment for international customers.
This has been further supported through
the provision of additional marketing
support and visual merchandising
guidance to our franchise partners.
Regional focus
In Asia, we focused on driving growth in
our priority territories of India and China
and delivered a sales growth of 13%.
With our partners Reliance Retail, we
opened six new stores in India and we
continued to grow our presence in
Shanghai, with the opening of seven new
stores. We now have a total of 14 stores
in the Shanghai region including our new
flagship store at Golden Bell Plaza. Our
Hong Kong operations also performed
strongly and we opened a new store in
the New Territories in January.
Our franchise operations across key
territories in the Middle East performed
well, with sales up 9.7%. We opened 19
new stores across 11 territories,
including new markets such as Georgia,
Kazakhstan and Armenia. We enhanced
our offer in existing markets, introducing
the new store format to our flagship
Bagdat store in Turkey.
Our European business was impacted by
the ongoing weakness of the Irish and
Greek economies and sales were down
0.4%. Sales in the Czech Republic
strengthened as the business responded
well to the management and structural
changes put in place last year.
Our first full line French store opened in
October at So Ouest in Levallois-Perret,
Paris and attracted over 80,000
customers in its first three days of
trading.
Multi-channel expansion
Our ‘bricks and clicks’ strategy
combines international store openings
with website launches and the latest
digital technologies. This approach
enables us to extend the reach of the
M&S brand in both new and existing
markets, as well as tailoring our offer to
local customers’ shopping preferences.
In May 2012 we shared plans to trade in
ten markets by the end of the financial
year. Following the successful launch of
our local French and Irish websites, we
made significant progress, with the
launch of a further six fully localised
European websites by April 2013.
In addition to our European e-commerce
offer, we are working closely with
international partners to benefit from
their local infrastructure and expertise to
help us explore the growth opportunities
in more complex e-commerce markets.
In January we launched an online shop
on China’s leading retail website TMall
and in February, we announced plans to
launch an e-commerce offer for the
Russian market, operated by our existing
franchise partner Fiba.
Golden Bell Plaza,
Shanghai
Our new 4,500 sq m flagship
store offers over 280
exclusive fashion lines.
Bestselling items include
Savile Row Inspired suits and
per una Speziale dresses.
EX PANSION
Bringing London style
to Europe
In November 2012 we
launched fully localised
websites across Spain,
Germany, Austria and Belgium.
Each site trades in Euros and
offers the preferred local
language, payment and
delivery options. In April 2013,
we added Luxembourg and
The Netherlands – taking the
M&S brand to more customers
across Europe’s fastest
growing e-commerce markets.
Marks and Spencer Group plc Strategic review
Annual report and financial statements 2013
29
Total Europe:
155 stores
4 new stores opened (-2 net)
6 new websites
Total Middle East and North Africa:
Total Asia:
137 stores
19 new stores opened (+15 net)
126 stores
22 new stores opened (+18 net)
1 new website
EX PANSION
Focus on franchising
We work with over 17 global
franchise partners accounting for
35% of International sales. The
franchise model is lower risk,
capital light, drives profitable
growth and through our partners’
local market expertise, helps us
access prime retail locations. Our
growth plans place greater
emphasis on the franchise model
and we’re working hard to
strengthen relationships and give
our partners confidence to further
invest in the brand.
Celebrating Britain
The unique events of 2012
put Britain in the global
spotlight and we capitalised
on our heritage with a range
of British-themed products.
Our commemorative Jubilee
biscuits tins proved extremely
popular, selling over 200,000
internationally.
Looking ahead
The coming year will see us continue
to grow our priority markets, with a
strong focus on franchise growth and
a fully integrated multi-channel
approach. We will also drive growth
in emerging markets by selecting
mall developments that offer the very
best opportunities to drive footfall to
our stores.
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Annual report and financial statements 2013
30
People
Our people are the lifeblood of M&S;
bringing our values to life: from the
innovative products they create
through to the service they provide.
To deliver value for our shareholders
we must engage our employees in our
business plans and ensure we have
the right individuals, with the right mix
of skills to deliver growth. In 2012/13
we kept our 82,000 colleagues as
engaged as possible and in turn
helped them become more in touch
with our customers.
Skills for today and tomorrow
As we transform M&S from a traditional
British retailer to a leading international,
multi-channel retailer, the skills and
experience of our workforce must evolve
too. This year we strengthened our
leadership team with a number of senior
appointments and almost two thirds of
our top 100 managers now have
international experience. In support of
this, we introduced a ‘global mobility’
team to facilitate global working and help
increase international exposure across
the business.
This year we continued to build our
pipeline of future talent; we continued
our MBA programmes, recruited 150
graduates and offered 50 one-year
placements to undergraduates as part of
their degree course. Following the move
to bring our software development
in-house, the 2013 graduate scheme
also included opportunities for specialist
software engineers to drive our ongoing
IT innovation and support our multi-
channel ambitions.
We are focused on building robust
succession plans, aligning the content of
our development programmes with our
business strategy. Over 90% of our
senior management has now completed
our flagship training programme – Lead
to Succeed. This year we introduced a
new development programme, targeting
the next generation of emerging leaders.
In touch with our customers
Our new company-wide In Touch
initiative is designed to equip employees
with the insight and skills to connect with
customers and help them discover more
about M&S. We know our customers are
looking for friendly, helpful,
knowledgeable people when they visit
our stores and through a combination of
in-store learning and information sharing,
we are helping employees better
anticipate customer needs and deliver
even higher standards of service.
Focusing on product knowledge,
presentation, availability and service,
over 65,000 colleagues have now
participated in our In Touch learning
programme. As we introduce more
technology to our stores, apps are also
becoming an increasingly popular
communications resource and our
Knowledge to Share videos are now
available on in-store iPads, as well as our
online portal. These short films from our
in-house experts help employees share
their pride and passion for our products
and services with customers. We have
also introduced social media portals into
our offices, delivering a live stream of
customer comments to M&S employees
across our business.
Employee engagement
We know there is a strong correlation
between engagement and performance,
so in 2012/13 we introduced our new
Pulse questionnaire – a shortened
version of our annual Your Say survey
– which increased the frequency of
employee feedback from annual to
quarterly. Results are shared via our new
online Engagement Hub, which brings
together resources including external
research and practical tools to help
managers address specific challenges
and create a more engaged team.
Despite a challenging environment, our
Your Say survey demonstrated improved
engagement, up 3% on last year.
Through our communication channels
we ensure everyone understands how
they can contribute to M&S’ success.
This year we extended our popular BIG
Idea staff suggestion scheme to our
international businesses, starting with
colleagues in our international sourcing
offices. Through the scheme, we pose a
quarterly question focusing on a key
business issue to employees. Each
question attracts around 2,000 ideas
and the first question posed to the
international staff attracted a response
from over one in ten employees.
Providing an efficient service
As part of our wider IT upgrade
programme, we are rolling out our new
People Planning system to all our offices
and stores. Designed to improve the
accuracy and flexibility of our HR service,
the new systems help deliver better
resource planning, fewer pay queries
and a significant reduction in paper
usage. Employees are also enjoying the
benefits – such as remote holiday
booking, online payslips and a salary
exchange scheme.
PeOPle HiGHliGHtS
Total employees
81,734
Employees with over
five years’ service
59%
Employees with over
ten years’ service
31%
Pension auto enrolment
New legislation introduced in
November 2012 required us
to automatically enrol eligible
employees into our pension
plan. We worked hard in
advance to ensure we had
an appropriate solution for
the business and retained a
leading pension offer for our
employees.
Our new wellbeing
website
Keeping our people healthy
and happy helps to ensure we
have a productive and
effective team. Our Wellbeing
website encourages
employees to maintain a
healthy lifestyle and this year
we updated the site, adding
new features including online
physiotherapy advice and
confidential counselling
services. The site now
attracts up to 2,000 employee
visits each month.
Marks and Spencer Group plc Strategic review
Annual report and financial statements 2013
31
New employee uniform
Taking a number of our best
sellers as inspiration, we
unveiled a new uniform for
our store colleagues. At
employees’ request, we
incorporated more pockets
and a key loop into the new
design and accents of green
on all pieces make our
customer assistants easier
to spot. All 80,000 pieces
of the previous uniform
will be Shwopped.
Marks & Start Logistics
Inspired by our successful
scheme already operating in
stores and offices, we took
our Marks & Start scheme to
another level and a new part
of our business. Marks &
Start Logistics will help
recruit, train and employ
people with disabilities and
health conditions at our newly
opened e-commerce
distribution centre at Castle
Donington.
Discover more online
IN TOUCH
Looking ahead
We will continue to engage our
people in our plans – building a more
international, multi-channel mindset
across M&S. Our employees will be
equipped with the skills and insight
required to bring the improvements
we’re making to life for our
customers. We will continue to
nurture talent within the business and
to ensure we have the right people to
drive growth and deliver our
ambitions.
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Annual report and financial statements 2013
32
Plan A
After our five year milestone in 2012,
this year was one of planning and
progress for Plan A. The commercial
benefits of our commitment remained
clear, as Plan A generated its biggest
net benefit to date, with £135m
available to be invested back into the
business. Having achieved our
ambitious operational targets of
becoming carbon neutral and sending
no waste to landfill, we continued our
journey of improvement; stretching
ourselves further and extending the
influence of Plan A.
Continuing our journey
In line with the seven pillars of Plan A, we
extended our involvement with our
stakeholders to combat climate change,
reduce waste, use sustainable raw
materials, trade ethically and help our
customers and employees lead more
sustainable lifestyles. We are now
measuring our progress against our 2015
targets and have achieved 139 of our
180 commitments, with a further 31 on
plan. As we move towards our goal of
becoming the world’s most sustainable
major retailer, we face some challenging
targets: to meet sustainable sourcing
standards for key raw materials, to
ensure 50% of products have a Plan A
quality and improve our suppliers’
sustainability performance.
We have made good progress and 45%
of M&S products sold now have a Plan A
quality such as Fairtrade, organic or
made from recycled material, compared
to 31% last year. We now use cotton
sourced from the Better Cotton Initiative
(BCI) in over 900 M&S products,
including our bestselling jeans and
lingerie and are committed to sourcing
25% of our cotton from sustainable
supplies by 2015.
We extended the scope of our external
collaborations so that our initiatives can
influence behaviour beyond M&S. In
conjunction with Oxfam and Business in
the Community, we extended our
successful Shwopping scheme with a
free clothes recycling service for offices
and workplaces. More than 10,000
garments were collected in the first
month, with over 70 companies signed
up to Shwop at Work, including B&Q,
IBM and Thames Water. We are working
with other retailers as part of the
Sustainable Clothing Action Plan and we
were delighted that other major retailers
followed our lead and introduced
versions of Shwopping.
Of our top 100 clothing suppliers, 48
have worked with us to implement
energy efficiency measures and we now
have a total of 35 qualified for our
rigorous Eco-Factory status. The launch
of our Supplier Training and Education
Programme (STEP), made it even easier
for suppliers to benefit from the lessons
we have learnt through Plan A. Hosted
on our Supplier Exchange website, it
provides access to a wealth of free
resources and information.
Involving our customers and
employees
Our customers are the central force for
driving change and this year, over five
million customers took part in Plan A
activities. We added a more digital
dimension to Plan A too, using social
media to tell customers how they can get
involved and our Shwopping app on
Facebook attracted over 700,000
customers.
Customers helped raise £1.5m for
Breakthrough Breast Cancer through
their donations and more than £690,000
for Macmillan Cancer Support, through
our World’s Biggest Coffee Morning. At
our Big Beach Clean-Up in April 2013,
9,000 M&S customers and staff helped
clean over 160 beaches and canals
collecting over 4,000 bags of rubbish.
This year 3,000 schools registered to
take part in our School of Fish
educational programme.
You can find out more about the
progress we made this year by visiting
our online Plan A 2013 report available at
marksandspencer.com/plana2013
Plan a HiGHliGHtS
Plan A Commitments
180
Commitments met
139
Commitments on plan
31
Supporting Fairtrade
We continued to introduce
new lines of Fairtrade foods,
and sales have doubled since
Plan A began in 2006/07.
ENCAGEMENT
Recognition of our
achievements
Our performance was
recognised in more than 40
social and environmental
awards and league tables.
M&S was the only retailer
included in the global Carbon
Performance Leadership
Index and for the third time,
M&S was named the
‘Responsible Business of the
Year’ by Business in the
Community.
Marks and Spencer Group plc Strategic review
Annual report and financial statements 2013
33
Helping customers and
employees count calories
In line with our health and
wellbeing commitments, we
introduced calorie labelling in
our store cafés and other
catering services for
customers. We also now
include calorie information on
the menu boards in our
employee cafés, and highlight
Eat Well products.
Cutting construction waste
In the year we launched our biggest,
greenest store at Cheshire Oaks, we
have already beaten our 2015 target
to reduce construction waste by 50%
for every £100,000 project we
undertake, with no construction
waste to landfill.
ENGAGEMENT
ENCAGEMENT
The impact of Shwopping
Through our Shwopping initiative,
customers and employees helped
divert over 3.8 million items of
clothing from landfill this year. Plan A
ambassador, Joanna Lumley visited
some of Oxfam’s Shwopping-related
projects in Senegal that are already
making a difference to communities
and changing lives for the better.
Discover more online
CuStOmeR inSiGHt
“ I want businesses
to be in touch with
the communities
they serve.”
Looking ahead
We are proud of what we have
achieved, but there is more to do in
terms of how we influence our
employees, customers, suppliers and
even our competitors. In 2013/14 we
will work with our external Sustainable
Retail Advisory Board to shape our
future vision for Plan A – ensuring it
reflects changing social priorities,
whilst continuing to tackle the
environmental and ethical challenges
that inspired its launch.
Marks and Spencer Group plcOverviewStrategic reviewFinancial reviewGovernanceFinancial statements and other information Financial review
Annual report and financial statements 2013
34
“ We’re building an
infrastructure fit to
support our future as
an international, multi-
channel retailer.”
Alan Stewart
Chief Finance Officer
In a challenging trading environment,
we delivered sales of £10bn this year,
up 1.3%. We managed the business
prudently and our underlying profit
was £665m, with underlying earnings
per share at 32.7p.
Whilst the execution of our business
plans continued to move with pace, we
navigated the short term market
challenges through strong financial
management. In a highly promotional
marketplace, we protected our margins
through tight control of mark down and
well targeted promotional activity.
Improved buying and food waste
management helped us mitigate
commodity price increases and further
protect profitability.
This approach was supported by tight
cost management across the business,
with UK operating costs up 1.8%. I have
always been clear that running an
efficient business is not simply about
cost cutting; it’s about having the right
procedures and processes in place.
Our commitment to Plan A encourages
us to find new and better ways of doing
things to address the eco and ethical
challenges we all face. In doing so we
have delivered a net benefit of £135m
available to be reinvested back into M&S.
As members of the International
Integrated Reporting Council pilot, we
are committed to reporting the long term
value created by sustainable business
practice.
Investing in our future
Our investment is strengthening our UK
business through the roll-out of our new
store format – encouraging customers
to reappraise M&S. Multi-channel sales
accelerated to £651.8m and International
sales reached £1.1bn.
We added 2.8% new selling space in the
UK; including nine new wholly owned
sites for our popular Simply Food format.
As with our operating costs, we applied
a disciplined approach to our
expenditure. In the second year of our
plan, activity has peaked with capital
expenditure at £821m. Through prudent
management we expect capex to be
£775m in 2013/14, a reduction on the
previous guidance of £850m. From
2014/15 we expect it to fall to c.£550m
per annum, a £50m reduction on our
earlier guidance.
A better business infrastructure
Our investment is helping us deliver
transformational change to our business
infrastructure – ensuring it is fit to
support our strategic ambitions and
allows us to meet and exceed our
customers’ growing expectations.
To achieve these aims we need to
simplify our IT and management systems
and create a supply chain that is agile,
fast and flexible from end to end. We are
already making improvements; changing
the way we allocate stock to store and
sourcing more from our direct suppliers
to make the most of our scale.
In May 2013 our major new distribution
centre at Castle Donington became
operational, which will help us deliver
a step change in the way we serve
M&S.com customers. The fully automated
site ensures we have all e-commerce
stock in one central location, at the heart
of the UK road and rail network. Better
visibility of our stock will drive improved
availability, faster delivery times and
reduced distribution costs.
We are further strengthening our
multi-channel capabilities through the
in-house development of our new
website platform. Due to launch in Spring
2014, the new platform will be better
integrated with our in-store and service
systems – providing us with the flexibility
required to deliver a best-in-class
customer experience.
Strengthening our financial position
Our investment in future growth is
funded through our existing cash flows
– supporting our commitment to
maintaining an investment grade credit
rating and a progressive dividend policy.
We have maintained a strong balance
sheet, with net debt at £2.6 billion,
including £606m of property partnership
liabilities associated with the pension
fund.
In November we announced the
outcome of the triennial actuarial
valuation of our Defined Benefit Pension
Scheme as at 31 March 2012. This
resulted in a funding deficit of £290m, a
substantial reduction from £1.3bn as at
31 March 2009. As a result, we agreed a
reduction in the annual cash
contributions as part of the ten year
funding plan, saving £245m of which
£153m will fall in the next four years.
We have made good progress with our
funding activity this year. In December,
we issued £400m of 12.5 year bonds at
a rate of 4.75%. The bonds were
significantly oversubscribed and priced
below the Group’s average cost of debt
of c.6%, providing sufficient liquidity to
manage upcoming debt maturities.
In light of long-term interest rates and the
successful bond issuance, we decided
to buy back and cancel £250m of
puttable callable bonds issued in 2007.
This incurred a one-off non-underlying
cost of £75m. This activity supports our
funding strategy, ensuring we have the
right mix of funding sources that provide
the cost effectiveness and flexibility to
match our business requirements.
Looking ahead
The transformation of our
infrastructure will deliver tangible
benefits for both our business and
our customers; creating a strong and
efficient platform from which to
deliver sustainable long-term growth.
Financial reviewMarks and Spencer Group plc Annual report and financial statements 2013
35
52 weeks ended
30 March
2013
£m
10,026.8
8,951.4
1,075.4
781.6
661.4
120.2
665.2
(100.9)
564.3
32.7p
29.2p
17.0p
31 March
2012
% variance
£m
+0.9
9,934.3
8,868.2 +0.9
+0.9
1,066.1
-3.5
810.0
-2.2
676.6
-9.9
133.4
705.9
-5.8
(47.9)
658.0
34.9p
32.5p
17.0p
-14.2
-6.3
-10.2
level
Summary of results
Group revenue
UK
International
Underlying operating profit
UK
International
Underlying profit before tax
Non-underlying items
Profit before tax
Underlying earnings per share
Basic earnings per share
Dividend per share (declared)
Revenues
Group revenues were up 0.9% (+1.3% on a constant currency
basis), driven by sales growth in both International and the UK,
with particularly strong growth in Food.
Total revenue %
UK
Clothing
Home
General Merchandise
Food
Total UK
International*
Total Group*
Like-for-like revenue %
UK
General Merchandise
Food
Total UK
* At constant currency
Q1
Q2
Q3
Q4
FY
-5.0
-6.1
-5.1
2.9
-0.9
0.9
-0.7
0.2
-1.4
0.1
3.9
2.1
6.1
2.5
-2.1
-2.5
-2.2
2.7
0.3
4.1
0.6
-2.6
1.4
-2.2
6.3
2.6
7.0
3.1
-2.4
-2.2
-2.4
3.9
0.9
4.5
1.3
Q1
Q2
Q3
Q4
FY
-6.8
0.6
-2.8
-1.8
1.6
0.0
-3.8
0.3
-1.8
-3.8
4.0
0.6
-4.1
1.7
-1.0
UK revenues were up 0.9% in total with a like-for-like decrease
of 1.0%. We added 2.8% of space, 2.6% in General
Merchandise and 3.1% in Food, on a weighted average basis.
International revenues were up 0.9%, (4.5% on a constant
currency basis). Our owned businesses in India and China
delivered a strong performance, driven by good like-for-like
growth and the opening of new space. Similarly, our franchise
business continued to perform well, especially the Middle East
region which delivered strong growth. Despite continuing tough
trading conditions impacting the full year performance in the
Czech Republic and the Republic of Ireland, there was an
improvement in trend in the second half of the year.
Operating profit
Underlying operating profit was £781.6m, down 3.5%.
In the UK, underlying operating profit was down 2.2% at
£661.4m. Gross margin was up 10bps at 40.9%. General
Merchandise gross margin was up 45bps at 51.8% as a result
of improved markdown management and ongoing sourcing
initiatives, which more than offset input cost pressures from
areas such as wages. Food gross margin was up 35bps at
31.7% due to improved buying, combined with better
management of promotional spend offsetting commodity price
inflation.
Underlying UK operating costs were up 1.8% to £3,049.8m. A
breakdown of the costs is shown below:
Retail staffing
Retail occupancy
Distribution
Marketing and related
Support
Total
52 weeks ended
30 March
2013
£m
928.9
31 March
2012
£m
889.2
1,030.7
1,030.9
405.1
155.3
529.8
398.1
161.8
515.0
3,049.8
2,995.0
%
variance
+4.5
–
+1.8
-4.0
+2.9
+1.8
Retail staffing costs increased due to investment made in
delivering customer service and increased space together with
the impact of the annual pay review.
Occupancy costs were level on the year with increases from
rent, rates and utilities offset by a decrease in depreciation.
Distribution costs continue to be managed tightly despite
inflationary pressure and volume increases in Food and
Multi-channel, as we continued to see the benefits of initiatives
to improve supply chain efficiency.
The reduction in Marketing and related costs reflects more
effective use of marketing spend within both Foods and GM.
Increase in support costs reflect the impact of annual pay
increases and higher pension costs associated with auto-
enrolment, which will continue into the coming year.
The underlying UK operating profit includes a contribution from
the Group’s continuing economic interest in M&S Bank of
£51.1m, last year £50.7m.
Financial reviewMarks and Spencer Group plcOverviewStrategic reviewFinancial reviewGovernanceFinancial statements and other information Annual report and financial statements 2013
36
International underlying operating profit was down 9.9% (down
10.9% on a constant currency basis). Franchise operating
profits were down 3.9% to £106.3m, with our European
franchise partners’ trading environments impacting on their
business. Owned store operating profits were down 39.0% to
£13.9m, due to continued macroeconomic pressures in Europe
combined with initial start-up costs in priority markets.
Non-underlying profit items
Net finance costs
Interest payable
Interest income
Net interest payable
52 weeks ended
Pension finance income (net)
30 March
2013
£m
(6.6)
(9.3)
–
–
31 March
2012
£m
(18.4)
–
(44.9)
Unwinding of discount on partnership liability
Unwinding of discounts on financial
instruments
Underlying net finance costs
Fair value movement of put option over
non-controlling interest in Czech business
15.6
Fair value movement on buy back of the
Puttable Callable Reset medium term notes
5.8
(0.2)
Net finance costs
52 weeks ended
30 March
2013
£m
(125.3)
5.3
31 March
2012
£m
(135.6)
7.1
(120.0)
(128.5)
21.2
(16.6)
25.6
–
(1.0)
(1.2)
(116.4)
(104.1)
–
15.6
(75.3)
(191.7)
–
(88.5)
Strategic programme costs
Restructuring costs
Impairment of assets
Fair value movement of put option over
non-controlling interest in Czech business
Fair value movement of embedded
derivative
Fair value movement on buy back of the
Puttable Callable Reset medium-term notes
Reduction in M&S Bank income
(75.3)
(15.5)
–
–
Total non-underlying profit items
(100.9)
(47.9)
Strategic programmes incurred £6.6m of costs in the year which
are not part of the normal operating costs of the business. These
include brand segmentation and business integration costs,
asset write-offs and accelerated depreciation. The cumulative
strategic programme costs incurred since the strategy was
announced is now £41m, of the c. £50m we announced in 2010.
Restructuring costs relate to the Group strategy to transition to
a one tier distribution network and the associated closure costs
of legacy logistics sites.
The fair value movement on the embedded derivative is driven
by an increase in the expected RPI rate.
The fair value movement on the buy back of Puttable Callable
Reset medium-term notes relates to a one-off finance charge
resulting from the cancellation of bonds issued in 2007. These
bonds included a coupon rate reset after five years based on a
fixed underlying 25 year interest rate. In light of continued low
long-term market interest rates and the successful £400m
bond issuance in December 2012, the Group decided to buy
back and cancel these bonds.
The reduction in the fee income received from M&S Bank is
due to M&S Bank’s potential redress to customers in respect of
possible mis-selling of financial products. This reduction in fee
income is expected to continue in the current year and amount
to a further c.£45m. We are discussing with HSBC whether
these charges are properly for our account under the terms of
our agreement.
The net interest payable was down 6.6% at £120.0m as a result
of the lower cost of funding of 5.9% (last year 6.5%). Underlying
net finance costs were up £12.3m to £116.4m due to the
unwinding of discount on the Partnership liability and a
reduction in pension income.
Taxation
The full year effective tax rate on underlying profit before tax
was 22.7% (last year 24.5%).
Underlying earnings per share
Underlying earnings per share decreased by 6.3% to 32.7p per
share. The weighted average number of shares in issue during
the period was 1,599.7m (last year 1,579.3m).
Dividend
The Board is recommending a final dividend of 10.8p per share.
This will result in a total dividend of 17.0p, in line with last year.
The Board’s dividend policy remains unchanged; a progressive
policy with dividends broadly twice covered by earnings.
Capital expenditure
Focus on the UK
Multi-channel
New stores
Store modernisation programme
International
Supply chain and technology
Maintenance
Total capital expenditure
52 weeks ended
30 March
2013
£m
197.4
75.3
94.1
85.7
53.7
247.2
67.9
821.3
31 March
2012
£m
71.6
42.8
170.4
73.6
61.9
212.7
104.5
737.5
Financial reviewMarks and Spencer Group plc Annual report and financial statements 2013
37
We continued to invest in our UK stores in order to create a
more inspiring environment. The new concept had been rolled
out to 337 stores at the year end. Our programme set out in
November 2010 will complete during the current financial year.
Our commitment to improving multi-channel capabilities
remains a priority with the development of our new multi-
channel platform and the launch of five new in-country
websites, and a dotcom presence in China. We now trade
online locally in 10 countries.
We added 2.8% of selling space in the UK (on a weighted
average basis), trading from 16.4m square feet at the end of
March 2013. We opened a net 35 new stores during the year,
including our flagship store in Cheshire Oaks. In our
International business, space increased by c.16%,
predominantly in our key strategic territories of India, China, the
Middle East and Russia.
We continued to invest in our supply chain and technology in
line with our strategy to build an infrastructure fit to support the
future growth of the business.
Cash flow and net debt
The May 2012 bond matured in the period, and was refinanced
from existing facilities and operating cash. Our funding strategy
continues to ensure a mix of funding sources and tenor of
maturity to provide cost effectiveness and flexibility to match
the requirements of the business.
Pensions
At 30 March 2013 the IAS 19 net retirement benefit surplus was
£193.0m (last year £78.0m). The market value of scheme
assets increased by £743.6m, due to improved asset
performance and company contributions. The present value of
the scheme liabilities has increased by £628.8m due to a
reduction in the discount rate. Our hedging strategy adopted
since 2010 continued to reduce significant fluctuations
between scheme liabilities and assets.
A full actuarial valuation of the UK Defined Benefit Pension
Scheme was carried out at 31 March 2012 and showed a
deficit of £290m. A funding plan of £112m was agreed with the
Trustees. The difference between the valuation and the funding
plan is expected to be met by investment returns on the
existing assets of the pension scheme.
Underlying EBITDA
Working capital
Pension funding
Capex net of disposals
Interest and taxation
Dividends and share issues/purchases
Net cash (outflow)/inflow
Opening net debt
Exchange and other movements
Property partnership liability
Closing net debt
Property partnership liability pro-forma
adjustment1
52 weeks ended
30 March
2013
£m
31 March
2012
£m
1,244.8
1,280.1
72.3
(70.9)
(829.7)
(235.3)
(248.4)
(67.2)
161.9
(89.9)
(720.7)
(277.3)
(236.7)
117.4
(1,857.1)
(1,900.9)
(84.0)
(606.0)
(1.7)
(71.9)
(2,614.3)
(1,857.1)
–
(603.1)
Closing adjusted net debt1
(2,614.3)
(2,460.2)
1 The property partnership liability pro-forma adjustment to net debt in the prior year
reflects the calculated fair value of the property partnership liability using a consistent
interest rate in the discounted cash flow model with that as at 21 May 2012 when the
terms of the property partnership were changed.
The Group reported a net cash outflow of £67.2m (last year
inflow £117.4m). This outflow reflects a 3% decline in underlying
EBITDA, a lower working capital inflow and higher capital
expenditure.
Net debt was £2,614.3m, an increase of £757.2m on last year
as a result of the change in terms of the property partnership
with the pension fund. Adjusting for this, net debt was £154.1m
higher than last year.
Financial reviewMarks and Spencer Group plcOverviewStrategic reviewFinancial reviewGovernanceFinancial statements and other information Governance
Chairman’s overview
“ The Board is the
guardian of the M&S
brand, its reputation
and stakeholder
relationships.”
Robert Swannell
Chairman
For many decades M&S has based its core values around
Quality, Value, Service, Innovation and Trust. These values have
played a key role in underpinning the integrity of our products,
brand and way of doing business, giving M&S a real point of
difference and special culture.
We see these values as key to the way we work with our
customers, our suppliers and our colleagues across the
business. They go to the heart of how we try to behave as an
organisation. As a Board these values support and inform the
way we review and debate our plans and ensure the right
environment for decision-making and challenge in all areas of
strategy, performance, responsibility and accountability.
Our values are recognised across the business. They are
fundamental to Plan A which celebrated its fifth year this year
and which simply could not have taken root in the way it has at
M&S without an existing culture that embraced it. Plan A is not
a disembodied CSR programme; it is a whole company way of
doing business.
As a Board how can we use these values to our advantage?
How can we ensure that we remain trusted and respected not
only for what we do and the integrity of the decisions we make,
but how we take those decisions? Do we as a Board set a clear
example from the top which will reinforce a culture of trust and
integrity in line with our values and ensure our future success?
These are questions for many organisations and those in
positions of leadership and trust.
Our values were tested in January when elements of our Interim
Management Statement appear to have been leaked to the
press. The implied breach of trust or carelessness was felt
profoundly in the organisation. We were determined that a
thorough, independent investigation was required of the leak and
of our process and controls and that we would learn from our
findings. The level of support for this action across the business
highlighted just how strongly the team felt about the relevance of
trust and integrity, not only for the company and the brand but
also towards our fellow colleagues. The findings of the
investigation have now been discussed by the Board and
appropriate measures implemented.
These values were also highlighted when the integrity of our
product and trust in our supply chain in Food meant that we were
not impacted by the horsemeat scandal. We have discussed our
processes and controls in this area in our Board and Audit
Committees meetings over the past year and recognise the hard
work of our Food team in building strong relationships and
knowledge of our suppliers. In this way we have ensured, so far as
we can, the quality and integrity of our product from farm to fork
so that customers can trust us for what we sell. Our deep-rooted
values demonstrated their worth in guiding the principles for how
we do business and if we continue to respect these, they should
continue to support us for the longer term.
Annual report and financial statements 2013
38
This year’s report – key activities
Following the positive feedback we received around the level
of openness relating to our Board activities and debate last
year, this year we are providing:
– enhanced integration across the report;
– greater insight into our Board strategy discussions;
– further disclosure from our Audit Committee, including
detail on our audit tenure discussions;
– greater depth to our remuneration disclosure and targets;
– more information and insight from our Nomination
Committee including debate around succession and a full
response to our diversity policy.
As a Board we regularly discuss and review:
– our performance today and our progress towards our goal
to become an international multi-channel retailer
– our brand and reputation and how we can ensure our
behaviours and processes protect us for our future
– our people, and how we can create a high performing
team, potential for future development and succession
along with appropriate motivation and reward
– our customers, suppliers and local communities ensuring
we treat them all fairly and respectfully
– our shareholders and how we can communicate openly on
the way we manage and challenge the business
– Plan A and our plan to become the world’s most
sustainable major retailer
These all reflect the considerations for directors as referenced
in the Companies Act and which our directors know they are
trusted to consider on behalf of all stakeholders.
At a time when breaches of corporate trust and integrity are
under the spotlight, resulting in ever greater scrutiny, regulation
and control, we believe our values could not be more relevant,
essential and valuable to sustain us for our long-term future.
Commentators recognise when trust and integrity are lost but
often attribute little credit to those who do their best to instil
and uphold high standards.
We continually try to find an appropriate balance between the
myriad factors upon which we, as a Board, must focus. These
range from our key commercial issues and our long term
strategy, to our response to enhanced governance processes
and reporting.
While the increase in scrutiny is sometimes testing, we
welcome the opportunity for clear challenge and frank dialogue
with our stakeholders. We were pleased that our governance
event was so well attended by investors and a wide range of
shareholder representative bodies, keen to engage with us on
a range of issues relating to our Board process, management
of risk, approach to remuneration and our progress to become
the world’s most sustainable major retailer. This year we have
also undertaken many more investor events to communicate our
progress on key aspects of our strategy. We believe that
greater levels of stewardship and engagement enable better
understanding about the issues we face and our deliberations
on them, as they relate to our business and people.
We welcome calls for greater openness and transparency on
Board deliberations, which in turn challenge us to plan our
agendas to maximise our impact, look at the way we do things
and reflect on the quality of the decisions we have made. We
have worked hard to build an engaged, trusted team and an
environment where we can all be honest and direct about what
we have done well and where we can do better.
We will not get everything right all of the time, but will learn
where we make mistakes – our annual Board evaluation assists
us in highlighting areas in which improvements can be made.
Last year we made good progress in achieving our plans,
including hosting our first Board meeting in Turkey.
GovernanceMarks and Spencer Group plc Our Committees and Committee Chairmen
For more on our Governance framework go to
marksandspencer.com/thecompany
This year, our Action Plan again sets out specific objectives to
improve our Board performance. Some of these are now part
of a longer term journey, but all aim to enable the right
environment for debate and reflection on the quality of our
decisions. These should enhance and underpin trust and
sustain our values longer term.
We do not see governance therefore as simply a box-ticking
exercise, nor as a generality related to processes or control. We
see it more about testing whether we do the right things, in the
right way, ensuring we have the right safeguards, checks and
balances in place and that the right considerations underpin
every decision we take. We believe that this practical approach
will support our performance for the long-term and protect the
trust, integrity and value of our business and our brand.
UK Corporate Governance Code
The UK Corporate Governance Code 2010 (the ‘Code’)
remained the standard against which we were required to
measure ourselves throughout 2012/13. We are pleased to
confirm that we complied with all of the provisions set out in
the Code for the period under review. We remain committed
to the very highest standards of corporate governance and as
such have benchmarked ourselves against the UK Corporate
Governance Code 2012 which we are not formally required to
report against until 2014. We already comply with a significant
number of the additional provisions and expect to be fully
compliant by 2013/14.
To see how we comply with the Code go to the investor section of
marksandspencer.com/thecompany
Those with a QR reader can use the link on the bottom right of this page
The required regulatory and governance assurances are
provided throughout this report. As in previous years, we have
sought to provide a genuine understanding of how governance
supports and protects the M&S business in a practical way.
We use the key themes of the Code as the framework for
articulating this narrative. Feedback from shareholders has
encouraged us to keep a similar format to previous years
so our approach to Leadership is outlined on pages 42
to 43, Effectiveness on 44, Accountability on 45 to 48,
Engagement and relations with shareholders on 49 to 50,
Remuneration on 55 to 70 and the Governance of our
Pensions Scheme on 71.
Our Governance Framework is reviewed every year and sets
out the roles, accountabilities and expectations for our
directors and our structures. This format has been adopted
widely across the business and can be viewed in the ‘Investors’
section of marksandspencer.com/thecompany.
Appointments and succession
The Nomination Committee has continued to work on ensuring
appropriate succession and mix amongst both the executive
and non-executive directors. We have set out our ambitions
Annual report and financial statements 2013
39
and objectives in shaping the Board for the future in our Board
Diversity Policy. We are conscious that, following Kate
Bostock’s departure and the subsequent appointments of
Steve Rowe and Andy Halford, the percentage of women on
the Board has fallen to 21% this year, below our target of 30%.
However, this will increase to 23% following Jeremy Darroch’s
departure from the Board on 19 June 2013. We remain
committed to our target and advocating the role women play at
the top of organisations and at M&S in particular. However, we
continue to make appointments based on objective criteria to
ensure we appoint the best individuals with diverse experience
and background for the role.
In July 2012, we announced that Kate Bostock would be
leaving M&S after eight years. In September, John Dixon was
appointed Executive Director, General Merchandise, moving
across from his previous role in Food. Steve Rowe, previously
Director of Retail, was appointed to the Board to succeed John
as Executive Director, Food.
As part of our succession planning, in December we
announced that Jeremy Darroch would be leaving M&S in
2013, after seven years on the Board and as Chairman of our
Audit Committee. We appointed Andy Halford as non-executive
director in January and he will succeed Jeremy as Chair of the
Audit Committee in June 2013. At that time we also announced
that Steven Holliday will remain on the Board for a further year,
stepping down at the 2014 AGM, by which time he will have
served ten years on the Board. This will allow us to phase the
change in Chairman of these two important Committees. In
spite of the proposed length of Steve’s tenure, the Board is
confident that he will continue to provide strong and
independent oversight to Board debate while continuing to
bring his significant experience, knowledge and leadership to
the Chairmanship of the Remuneration Committee. More detail
on the Board’s debate and assessment of Steve’s
independence is outlined on page 44.
On 21 May, we announced that Steven Sharp, Executive
Director Marketing, will be retiring from the business. He will
step down from the Board following the AGM and will continue
as Creative Director until 28 February 2014. Patrick Bousquet-
Chavanne will take over responsibility for marketing and will be
put forward for election to the Board as Executive Director,
Marketing and Business Development at the 2013 AGM.
The Nomination Committee has also reviewed our future talent
pool and longer-term succession potential. The Committee’s
activities are outlined in detail on page 53.
In supporting this debate on talent and future leadership for the
business, the Remuneration Committee has continued to
develop and test the setting and disclosure of objectives and
targets. These are highlighted in further detail on page 62. In line
with last year, the Committee has also been an active voice in a
number of formal consultations and engaged with shareholders
and shareholder representative bodies on the broader UK
remuneration debate and need for greater transparency.
Monitoring risk
In view of our longer term ambitions and the significant business
initiatives currently underway across the business, the Audit
Committee has played a substantial role in ensuring appropriate
governance and challenge around our risk and assurance
processes. This is covered in further detail on page 45.
Overall, I am pleased with the Board’s activity across the
governance agenda, some of which is highlighted on the
following pages. Further detail is available on our website.
We continue to challenge ourselves and the business and to
reflect and learn from our decisions and debate.
Robert Swannell
Chairman
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Board of directors
Annual report and financial statements 2013
40
Robert Swannell
Chairman I
Appointed:
Non-executive director in
October 2010 and
Chairman in January 2011.
Experience: Robert is a
Chartered Accountant
and Barrister. He
possesses a wealth of knowledge of many different
business sectors, banking and the City acquired
over a 33 year career in investment banking and
extensive government and regulatory experience
from roles with BIS, the Take-Over Appeal Board
and the FCA. His significant board experience
covers a diverse range of industries including retail,
private equity and real estate. His leadership in the
area of governance continues to promote robust
debate and drive a culture of openness in the
boardroom. Robert was previously Senior
Independent Director of both British Land and 3i
Group and Chairman of HMV.
Other roles: Chairman of Governing body of
Rugby School, Trustee of Kew Foundation.
Committees: Nomination (Chairman)
Marc Bolland
Chief Executive Officer
Appointed: May 2010
Experience: Marc
joined M&S from
Morrisons where, as
CEO, he successfully led
the development and
implementation of its
long-term strategy. Prior to this, Marc built up
significant consumer marketing and international
experience at Heineken NV, which he joined in
1987. He was appointed to Heineken’s Board in
2001, with responsibility for global marketing and
the regions of Western Europe, the USA, Latin
America and North Africa, becoming Chief
Operating Officer in 2005. As CEO, Marc
continues to work with the Board in developing
and implementing our strategy to become an
international, multi-channel retailer.
Other roles: Non-executive director of Manpower
Inc, USA, Honorary Vice President of UNICEF UK
and Director of the Consumer Goods Forum.
Committees: Nomination
Alan Stewart
Chief Finance Officer
Appointed: Oct 2010
Experience: Alan brings
extensive corporate
finance and accounting
experience in highly
competitive industries as
varied as retail, travel and
banking. Alan joined M&S from the aircraft leasing
company AWAS Aviation Capital, where he was
Chief Financial Officer. Alan previously spent nine
years in investment banking at HSBC before
joining Thomas Cook in 1996, where he held a
number of senior roles including Chief Executive of
Thomas Cook UK and Group Chief Financial
Officer of Thomas Cook Holdings. Following his
appointment as Group Finance Director of
WH Smith plc in 2005, Alan played a central role in
improving the Group’s financial performance. He
was previously a non-executive director of Games
Workshop Group plc.
John Dixon
Executive Director,
General Merchandise
Appointed: Oct 2012
Experience: John has a
wide range of retail and
product experience
acquired from across the
business. John began his
Laura Wade-Gery
Executive Director,
Multi-channel
E-commerce
Appointed: July 2011
Experience: Laura has
considerable retail and
consumer experience,
including significant
Steve Rowe
Executive Director, Food
Appointed: Oct 2012
Experience: Steve
joined M&S in 1989 and
progressed through a
variety of roles within
store management
before moving to Head
career with M&S in store management in 1986
before moving to Paris, where he spent three years
in various commercial roles at M&S’ European
stores and Paris Head Office. He joined the UK
Head Office as a Food Buyer before progressing to
Category Manager for Fresh Produce. John has
held a range of senior roles including Executive
Assistant to the Chief Executive, Director of M&S
Direct and Director of Home. He became Director
of Food in July 2008 and was appointed Executive
Director, Food in 2009, moving to Executive
Director, General Merchandise in October 2012.
e-commerce knowledge acquired from her
previous roles at Tesco plc, including Chief
Executive Officer of Tesco.com and Tesco Direct.
Laura continues to drive the improvement and
modernisation of our e-commerce and
multi-channel capabilities. She was previously a
non-executive director of Trinity Mirror plc and has
held a variety of roles at Gemini Consulting and
Kleinwort Benson.
Other roles: Trustee of Royal Opera House
Covent Garden Limited, Member of the
Government’s Digital Advisory Board and a Trustee
of Aldeburgh Music.
Office in 1992. He has acquired considerable
experience from senior positions across the
Group. Steve spent seven years in Menswear,
during which he held a number of roles including
Head of Merchandising, prior to his appointment
as Director of Home in 2004. He was appointed
Director of Retail in 2008 and Director of Retail and
E-commerce in 2009, briefly reverting to Director
of Retail in 2011 before his appointment to the
Board in 2012.
Other roles: Director, Strategic Board of the New
West End Company.
Jan du Plessis
Senior Independent
Director I
Appointed:
Non-executive director in
2008 and Senior
Independent Director in
March 2012.
Experience: Jan has
Vindi Banga
Non-executive director I
Appointed: Sept 2011
Experience: Vindi has
extensive consumer
brand knowledge and
global business
experience, acquired
over 33 years in senior
Miranda Curtis
Non-executive director I
Appointed: Feb 2012
Experience: Miranda
brings a wealth of
experience of the
international consumer
and technology sectors
and extensive knowledge
considerable business and brand experience
having sat on the boards of several leading
companies across a range of industries. Jan was
formerly Chairman of British American Tobacco
plc and a non-executive director of Lloyds Banking
Group. He was Group Finance Director of
Richemont, the Swiss luxury goods group, until
2004 and Chairman of RHM from 2005 until its
takeover by Premier Foods in 2007. Jan is a South
African Chartered Accountant.
Other roles: Chairman of Rio Tinto.
Committees: Audit, Nomination, Remuneration
roles within the consumer goods industry at
Unilever plc, including President of the Global
Foods, Home and Personal Care businesses and
as a member of the Executive Board. Vindi was
previously Chairman and Managing Director of
Hindustan Lever Limited. He is the recipient of the
Padma Bhushan, one of India’s highest civilian
honours.
Other roles: Partner at Clayton Dubilier & Rice,
non-executive director of Thomson Reuters and
Maruti Suzuki India, Board member of B&M Retail
and a member of the Prime Minister of India’s
Council of Trade and Industry.
Committees: Nomination, Remuneration
of the global broadband cable industry. During
Miranda’s 20-year career with Liberty she led the
company’s investments in digital distribution and
content operations across Continental Europe and
Asia-Pacific, most notably in Japan. She was
previously a non-executive director of National
Express Group plc.
Other roles: Chairman of Waterstones,
non-executive director of Liberty Global, board
member of both the Institute for Government and
the Royal Shakespeare Company, Deputy
Chairman of Garsington Opera and Vice Chairman
of African girls’ education charity, Camfed.
Committees: Nomination, Remuneration
I Independent
GovernanceMarks and Spencer Group plc Annual report and financial statements 2013
41
Board diversity
This year we continued to make progress in
shaping our Board for the future, ensuring that
diversity, in its broadest definition, is at its heart.
From a practical perspective, our focus on
diversity means we look hard at our mix of skills
and experience. New Board appointments will
always seek to complement these as well as
ensuring that a good balance of skill set,
international experience and gender is maintained.
Our policy on page 54 summarises our views and
sets out our ambitions with regard to diversity
and what this means for our business, customers
and stakeholders.
Board experience
Retail
93%
Consumer
100%
Finance
36%
E-commerce & technology
29%
International
Women on the board*
21%
Executive
17%
Non-executive
25%
Executive recruitment
Internally
33%
Externally
67%
Non-executive Board tenure
0–1 years
12%
1–3 years
38%
3– 6 years
25%
6– 9 years
25%
* Women on the Board will increase to
23% following Jeremy Darroch’s
departure on 19 June 2013.
Amanda Mellor
Group Secretary and
Head of Corporate
Governance
Appointed: July 2009
Other roles:
Non-executive director
of Kier Group plc.
Martha Lane Fox
Non-executive director I
Appointed: June 2007
Experience: Martha
brings extensive
experience in the
successful operation of
online and consumer
facing businesses. Her
input continues to challenge and influence the
development of our multi-channel strategy. Martha
co-founded lastminute.com in 1998, taking it public
in 2000 and selling it in 2005. Martha was awarded
a CBE in 2013 and was appointed a crossbench
peer in the House of Lords in March 2013.
Other roles: UK Digital Champion, chair of Go On
UK, MakieLab, Founders Forum for Good and the
Government’s Digital Service Advisory Board.
Co-founder and chair of Lucky Voice, non-
executive director of MyDeco.com, the Women’s
Prize for Fiction and founder of her own charitable
foundation, Antigone.
Committees: Audit, Nomination
Steven Sharp
Executive Director,
Marketing
Appointed: Nov 2005
Experience: After nine
years at M&S Steve will be
retiring from the business.
Therefore he will not be
standing for election this
year and he will step down from the Board following
the AGM on 9 July 2013. Steve will continue to work
in the business as Creative Director until 28 February
2014. Steve has built up extensive marketing
experience over a career that began when he joined
Bejam as a Marketing Manager in 1978. He
progressed to the Argyll Group and moved to ASDA
in 1987, where he became Marketing Director.
Steve’s other senior marketing roles have included
the Burton Group, Booker plc and Arcadia Group
plc. He joined M&S in 2004.
Other roles: Non-executive director of Adnams
plc, Fellow of the Chartered Institute of Marketing,
The Marketing Society and The Royal Society of
Arts and a Visiting Professor of Glasgow
Caledonian University.
Andy Halford
Non-executive director I
Appointed: Jan 2013
Experience: Andy
brings invaluable
international, consumer
and digital experience, as
well as a strong finance
background. He joined
Jeremy Darroch
Non-executive director I
Appointed: 2006,
Jeremy will step down
from the board on
19 June 2013.
Experience: Jeremy has
considerable expertise in
the consumer retail
Vodafone in 1999 as Financial Director of Vodafone
Limited, becoming Financial Director for
Vodafone’s Northern Europe, Middle East and
Africa Regions in 2001. He was previously Chief
Financial Officer of Verizon Wireless in the US and
Group Finance Director of East Midlands Electricity
plc. Andy is a former Chairman of The Hundred
Group of Finance Directors in the UK. He is a
Fellow of the Institute of Chartered Accountants in
England and Wales.
Other roles: Chief Financial Officer of Vodafone
Group plc and a member of the Board of
Representatives of the Verizon Wireless
Partnership.
Committees: Audit (Chairman Designate),
Nomination
environment built up over a successful career at
some of the UK’s most high profile organisations.
A qualified Chartered Accountant, Jeremy spent
12 years in a range of roles at Proctor and Gamble,
including European Finance Director for their
Healthcare division. He was Group Finance
Director and Retail Director at Dixons Retail before
his move to British Sky Broadcasting in 2004,
where he was appointed Chief Financial Officer,
later becoming CEO in 2007. Jeremy will step
down from the Board of M&S on 19 June 2013.
Other roles: CEO of British Sky Broadcasting.
Committees: Audit (Chairman), Nomination
Steven Holliday
Non-executive director I
Appointed: July 2004
Experience: Our
longest serving
non-executive director,
Steve has extensive
knowledge of corporate
business and has held a
Patrick Bousquet-
Chavanne
Executive Director,
Marketing and Business
Development
Appointed: Following the
AGM on 9 July 2013
Experience: Patrick
joined M&S in September
variety of senior executive and boardroom level
roles within the challenging utility and oil and gas
industries. He spent 19 years with Exxon and was
an executive director of British Borneo Oil and Gas
before joining National Grid as Group Director, UK
and Europe in 2001 and became CEO in 2006. His
international experience includes a four year spell
in the US and he has developed business
opportunities in countries including China, Brazil,
Australia and Japan.
Other roles: Group CEO of National Grid;
Chairman of both Board of Trustees of homeless
charity Crisis and Business In The Community’s
Talent and Skills Leadership Team.
Committees: Audit, Nomination,
Remuneration (Chairman)
2012 as Director of Strategy implementation and
Business Development and has played a key role in
creating the new marketing strategy for
Womenswear. Patrick’s extensive experience of
the consumer goods industry was built up over a
career spanning more than 25 years, with 15 years
spent in senior global brand management
positions in London, Paris and New York. He
joined Estée Lauder in 1989 as Vice President and
General Manager of Aramis International and was
appointed to Lauder’s executive committee in
1998. Patrick became Group President of the
Estée Lauder Companies in 2001, stepping down in
2008 to pursue opportunities in the internet and
new technology fields.
Other roles: Non-executive director of
Brown-Forman Inc
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Leadership
Annual report and financial statements 2013
42
The Board in action
The Board took the opportunity as part of its strategy days
in 2012/13 to visit some key operations and projects around
the business.
Strategy meeting at Castle Donington
The board discussed progress of the new
end-to-end supply chain and strategic IT
programmes, toured the new distribution
centre and reviewed the new Marks & Start
Logistics initiative.
“ The Board devoted
considerable attention
to the key strands of the
strategy, including visits
to Cheshire Oaks, Castle
Donington and Istanbul.”
Robert Swannell
Chairman
multi-channel ambitions. This was combined with a visit to our
new Plan A sustainable store at Cheshire Oaks, where key
elements of our new store design were in place. In February
2013 the Board met in Istanbul, Turkey to review and debate
progress of the International strategy, which included meeting
the Company’s franchise partner in the region to understand
more about their ambition and vision. The Board also visited a
number of local stores around Istanbul and toured the regional
sourcing hub to gain a more detailed understanding of the GM
supply chain.
The role of the Board
The Board’s primary responsibility is to promote the long term
success of the Company by creating and delivering sustainable
shareholder value. The Board seeks to achieve this through
setting out its strategy, monitoring its strategic objectives and
providing oversight of its implementation by the management
team. In establishing and monitoring its strategy, the Board
considers the impact of its decisions on wider stakeholders
including employees, suppliers and the environment.
A number of key decisions and matters are reserved for the
Board’s approval and are not delegated to management. These
include matters relating to the Group’s strategy, approval of
major acquisitions, disposals, capital expenditure, financial
results and overseeing the Group’s systems of internal control,
governance and risk management. The Board delegates
certain responsibilities to its committees, to assist it in carrying
out its functions of ensuring independent oversight. These
committees are made up of independent non-executive
directors and play a key role in supporting the Board. The
Chairmen of the Audit, Nomination and Remuneration
Committees provide updates on their activities during the year
later in this report.
A full schedule of matters reserved for the Board’s decision
along with the terms of reference of the Board’s key
committees and the individual roles of the Board members can
be found in the Group’s formal Governance Framework
available to view online at marksandspencer.com/thecompany
The Board meets regularly throughout the year. There were 11
scheduled meetings this year including two strategy meetings,
where the non-executive directors contributed their expertise
and independent oversight into the development of the strategy.
Sufficient time is given at the end of each Board meeting for the
Chairman to meet privately with the Senior Independent Director
and the non-executive directors to discuss any matters. Details
of individual Board directors’ attendance at meetings in 2012/13
are set out in the table to the right.
Progress against strategy
The Board spent a great deal of its time together in 2012/13
focused on monitoring its key strategic objectives around
International, Supply Chain and Multi-channel, reviewing
progress against the three-year plan, challenging key strategic
investments and initiatives and reviewing the Company’s capital
structure. The Board held two strategy awaydays during the
year, to ensure it continued to challenge, test and develop its
strategy of becoming an international multi-channel retailer. The
first of the meetings was held in October 2012 and gave the
Board the opportunity to visit the Company’s new distribution
centre in Castle Donington, a key component of our
Name of Director
Chairman
Robert Swannell
Chief Executive
Marc Bolland
Executive directors
Kate Bostock (resigned 30 September 2012)
John Dixon
Steve Rowe (appointed 1 October 2012)1
Steven Sharp2
Alan Stewart
Laura Wade-Gery3
Non-executive directors
Vindi Banga
Miranda Curtis4
Jeremy Darroch (Retires 19 June 2013)
Martha Lane Fox5
Andy Halford (appointed 1 January 2013)
Steven Holliday
Jan du Plessis
Board
meetings
A
B
Percentage
attended
11
11
100%
11
11
100%
4
11
8
11
11
11
11
11
11
11
3
11
11
4
11
8
10
11
10
11
10
11
10
3
11
11
100%
100%
100%
90%
100%
90%
100%
90%
100%
90%
100%
100%
100%
A = Maximum number of meetings the director could have attended.
B = Number of meetings the director actually attended.
1) Steve Rowe attended the Board meeting on 5 September 2012 as part
of his induction ahead of his appointment to the Board on 1 October
2012.
2) Steven Sharp was unable to attend the Board meeting on 13 March
2013 due to illness.
3) Laura Wade-Gery was unable to attend the Board meeting on 20 June
2012 due to personal commitments.
4) Miranda Curtis was unable to attend the Board meeting on 2 May 2012
due to prior business commitments with Liberty Global.
5) Martha Lane Fox attended all scheduled board meetings, however was
unable to attend an additional Board Conference Call on 23 November
due to illness.
Monitoring risk
The Board has continued to debate and develop its
understanding of risk, risk appetite and tolerance, testing
how we can best maximise the opportunities for us to grow
the business.
Protecting the business from operational and reputational risk is
an essential part of the Board’s role. In line with our action plan,
and supported by the Audit Committee, we have continued to
drive a better understanding of the risks we face, further
developed and tested our tolerance and appetite for risk and
ensured our Group Risk Profile continues to robustly reflect the
business’ strategic objectives and opportunities. We have
carried out a full review of internal controls, with a particular
focus on processes and controls around confidential information
following the leak of elements of the Q3 Interim Management
Statement.
GovernanceMarks and Spencer Group plc The Board in action
Annual report and financial statements 2013
43
Strategy meeting in Istanbul
The Board met in Istanbul in February to
review and discuss the International
strategy. The directors met with our
franchise partners in the region, the
regional sourcing team and visited a
number of stores in Istanbul. The Board received presentations
on the regional sourcing strategy and key growth plans.
Leadership Development Service, a personalised coaching
service, which recognises the specific needs of individuals and
addresses them through a tailored set of initiatives. One such
initiative is the facilitating of non-executive roles outside M&S
for key individuals who we believe would benefit from gaining
valuable Board experience.
Our MBA Leadership Programme, which aims to recruit and
develop talented MBA graduates from a range of international
business schools, towards senior management and leadership
roles in ambitious timescales, is proving an effective way of
developing talented international leaders with experience
across a range different industries. A balance of developing our
internal talent while accessing key external talent where
necessary is enabling us to build a stronger and more dynamic
pool of leaders across the business.
Visit to Cheshire Oaks Store
The second part of the October strategy
day. The Board discussed the
development of Plan A, the store
modernisation programme and held a
session on the future of retail. The Board
met with engineers and toured the store, one of our first Plan A
sustainable learning stores, to understand some of the specific
environmental initiatives undertaken in the build.
Oversight of succession
Securing succession and developing leadership of future talent
have once again been key considerations for the Board. A
number of significant changes were made to the Board and
senior management during the year to bring further strength
and expertise to the executive team and ensure continued
independent oversight. Both new appointments to the Board
were made against objective criteria and in line with the
Board’s diversity policy which we introduced last year. We have
reported our progress against the policy on page 54. Tailored
induction programmes were provided to both executive and
non-executive directors, details of which can be found on our
corporate website, marksandspencer.com/thecompany.
The development of the senior leadership team across the
business has continued, with all of the Top 100 employees
having now completed our flagship leadership development
programme, Lead to Succeed. We have introduced a
Board activity 2012/13
The Board’s key priority this year was providing oversight of and challenge to the progress of its strategy to be an international multi-channel, retailer.
Key activities for the Board during the year included
Leadership and employees
– Discussed changes in the composition of the
Board and its Committees;
– Considered succession planning and approved
the appointment of a new executive director
and one new non-executive director.
– Reviewed employee engagement across the
business – Annual ‘Your Say’ survey and
quarterly pulse surveys; received updates on
initiatives taking place across the Company
including the BIG Idea, director presentations,
roundtable director discussions and Women in
Business forums.
– Discussed and reviewed high potential talent
across the business, held non-executive
director lunches with successional and high
performing senior management.
Customers
– Debated and challenged performance in
Womenswear. Received and considered
updates on the new GM strategy and initiatives
across Womenswear.
– Received regular updates from the Customer
Insight Unit on the economic environment, the
retail sector, competition and customers.
– Considered and approved the launch of M&S
Bank current accounts and an in-store branch
network.
Governance
– Considered, challenged and identified how we
continue to manage and monitor risk appetite;
– Reviewed the formal evaluation of the Board
and its Committees in 2013, facilitated
internally by the Group Secretary.
– Considered, challenged and approved the
optimum capital structure for the business.
– Scrutinised and approved a number of capital
spending projects.
– Reviewed and challenged the Group’s Treasury
policies.
– Provided input into the BIS (Business,
Innovation & Skills) consultations on the new
remuneration and narrative reporting
framework.
– Launched an independent investigation into
the Q3 leak and reviewed and discussed the
recommendations.
Trust and values
– Reviewed and promoted the business values
and culture ensuring that they remain relevant
and core to the business.
– Considered the impact of the European wide
horsemeat scandal on the food industry and
M&S.
– Received updates on the Plan A agenda and
reviewed initiatives such as the launch of the
Shwopping campaign.
Strategy
– Two strategic awaydays:
– i) October 2012: Reviewed investments in the
new supply chain programme, considered the
future of multi-channel and shopping channels,
reviewed the store modernisation programme
and the impact and future development of Plan
A. Included visits to Castle Donington
distribution centre and Cheshire Oaks store.
– ii) February 2013: Held in Istanbul, it provided
an opportunity for the Board to meet our
franchise partner and review, discuss and
develop the International strategy.
– Reviewed the new strategy in GM and the
structural changes made across Womenswear.
– Considered, scrutinised and approved the
Group’s three year strategic and operating
plan.
– Discussed the ongoing store modernisation
programme.
– Debated the property strategy and the impact
of multi-channel.
– Reviewed the long term funding strategy for
the DB pension scheme.
Shareholder relations
– Discussed the Annual Independent Investor
Audit undertaken by Makinson Cowell.
– Actively engaged our top 20 shareholders and
investor bodies at our annual governance
event in June 2012 in which the Board invited
discussion on matters of concern.
– Discussed our International strategy with
investors in Istanbul.
– Engaged retail shareholders at the AGM.
– Helped protect our shareholders by launching
a share fraud awareness campaign.
GovernanceMarks and Spencer Group plcOverviewStrategic reviewFinancial reviewGovernanceFinancial statements and other information Effectiveness
Annual report and financial statements 2013
44
The annual Board effectiveness review provides a useful
opportunity for the Board to take a step back and reflect on
their collective and individual effectiveness, consider where
improvements can be made and chart progress. This year the
Board evaluation was facilitated internally between January and
March 2013, by our Group Secretary and Head of Corporate
Governance, who has significant insight into both the day-to-
day and strategic workings of the Board. This year’s internal
evaluation follows two years in which an independent externally
facilitated Board review has taken place.
Independence of directors
The Board reviews the independence of its non-executive
directors as part of the annual Board effectiveness review.
The non-executive directors bring a strong independent
oversight to the Board and following this year’s review the
Board considers that all of the non-executive directors
continue to demonstrate their independence. Biographical
details of each director can be found on pages 40 to 41.
The Chairman is committed to ensuring the Board is made
up of a majority of independent non-executive directors who
objectively challenge management, balanced against the
need to ensure continuity on the Board. In December 2012
we announced that Jeremy Darroch will step down in
June 2013 having served seven years on the Board.
Andy Halford was appointed to the Board on 1 January as a
non-executive director and Chairman designate of the Audit
Committee. The Board strongly believes that it is essential
to ensure continuity of corporate knowledge and experience
to complement and support the new skills and experience
brought to the Board by those directors appointed over the
last two years. The Board agreed that Steven Holliday, who
will have served on the Board for nine years in July 2013,
stands for re-election for an additional year at the 2013
AGM. Steve’s independence has been subject to particular
scrutiny; his detailed knowledge and association with the
Group assists him in effectively challenging management and
his length of service, when taken in the context of the Group
as a whole, enhances his effectiveness as a non-executive
director. As a result, the Board believes that Steve remains
independent in character and judgement.
How did we approach the Board and Committee Review?
In line with previous years, we took the view that a detailed and
focused one-to-one discussion, conducted in person with each
director was the most effective way to facilitate a constructive
and meaningful conversation. The directors were asked their
views on a range of subjects including:
– Board composition and the role of the Board
– Board leadership and culture
– Monitoring of Company performance
– Corporate governance
– The facilitation of the meetings particularly around scope of
agendas, quality of papers, degree of challenge and debate.
The Senior Independent Director meets with the non-executive
directors at least once a year to review the Chairman’s
performance. The Senior Independent Director then provides
feedback to the Chairman as appropriate.
How are we progressing?
It was clear from the Board review that good progress has
been made against the actions the Board set itself last year:
– Continued to strengthen succession at both Board and senior
management level. Ensured the Board is comprised of a
diverse range of skills and experience, well positioned to
challenge and develop the strategy. The appointment of
Andy Halford to the Board as a non-executive director and
the changes made to the executive team, including the
appointment of Steve Rowe to the Board, have been key
appointments;
– Engaged with senior management and high potential
individuals throughout the year, facilitated through a series
of lunches, strategy and investor days;
– Engaged institutional shareholders throughout the year.
Our annual governance event held in June 2012 was well
attended by both major shareholders and investor bodies.
An investor event, addressing our international strategy, was
held in Istanbul in February 2013 and was also well attended;
– Ensured director inductions continued to be full and thorough
and offer the opportunity to dive into key parts of the
business;
– Continued to drive an understanding of the Board’s risk
tolerance and appetite;
– Made significant progress on planning the long-term
framework for Board discussion, allowing more time for fuller,
more challenging and strategic debate.
Action Plan 2013/14
The insights gathered from the Board review have highlighted
some opportunities which have resulted in a clear action plan
for the year ahead. The actions address the key areas of
succession, Board oversight and reflection, risk management
and information management.
During the year the Board is committed to:
– Continue our work on succession planning with greater
focus on high potential individuals and their development in
the business, especially below director level;
– Review how we can continue to benefit from the extensive
and diverse experience of our non-executive directors;
– Allow for greater review and reflection on the quality of past
decisions;
– Given our changing risk profile as we become a leading,
international multi-channel retailer, ensure appropriate
challenge and debate around risk and approach to risk;
– Board papers: continue to review our information
management, content and balance of papers;
– Meetings: consider the balance and content of our agendas
to allow greater time for open debate.
Director induction
On joining the M&S Board a full, formal and tailored induction
programme is arranged for directors including access to all
parts of the business and an opportunity to meet major
shareholders.
During the year we appointed Steve Rowe and Andy Halford to
the Board. Steve was appointed Executive Director, Food having
worked across a significant part of the business over a 23 year
career at M&S. Steve’s induction was focused specifically on
the Board process, including his duties, responsibilities and
obligations as a director. Andy Halford’s appointment as a
non-executive director and Chairman designate of the Audit
Committee was tailored specifically around learning the
business, its operations, its key markets and risks.
GovernanceMarks and Spencer Group plc Accountability
We believe that effective risk management is critical to the
achievement of our strategic objectives and the long-term
sustainable growth of our business.
What is our approach to risk management?
The Board has overall accountability for ensuring that risk is
effectively managed across the Group and, on behalf of the
Board, the Audit Committee reviews the effectiveness of the
Group Risk Process.
Risks are reviewed by all business areas on a half-yearly basis
and measured against a defined set of likelihood and impact
criteria. This is captured in consistent reporting formats,
enabling Group Risk to consolidate the risk information and
summarise the key risks in the form of the Group Risk Profile.
Our Executive Board discusses the Group Risk Profile ahead of
it being submitted to the Group Board for final approval.
To ensure our risk process drives improvement across the
business, the Executive Board monitors the ongoing status and
progress of action plans against key risks on a quarterly basis.
Risk remains an important consideration in all strategic
decision-making at Board level, including debate on risk
tolerance and appetite.
Key areas of focus
We continue to drive improvements to our risk management
process and the quality of risk information generated, whilst
at the same time maintaining a simple and practical
approach.
During the year we have focused on a number of key areas:
1. Evolving risk descriptions
As time progresses, the nature of some Group risks is
evolving. To ensure we continue to address the most
important risks facing the Group at this point in time we have
updated a number of risk titles and descriptions. New titles
are assigned to GM product (2012: Our customers) and
Food safety and integrity (2012: Food safety). New
descriptions are in place for International and Our people.
2. Action plans for key risks
We continue to assess whether sufficient additional
mitigating activities are underway to reduce the net risk
position of the Group’s key risks. By considering net risk on
both a one year and three year horizon, we are able to
identify when mitigating activities will result in a tangible risk
reduction. We also continue to review the ongoing
appropriateness of actions to ensure they are as relevant,
timely and measurable as possible.
3. Influence of risk tolerance
Risk tolerance and appetite are important considerations
in strategic decision-making at Board level. We also
recognise the value in applying the concept of risk tolerance
in discussions across all levels of the organisation. It is
especially beneficial when determining the nature of
mitigating activities and their role in addressing risk likelihood
or impact.
Annual report and financial statements 2013
45
Risk identification
Risks highlighted
and documented in
a centrally managed
Risk Register
Risk assessment
Risks assessed in
terms of likelihood
of occurrence and
potential impact on
the Group
Risk mitigation
Required actions are
agreed and assigned,
with target deadlines
and quarterly status
updates
D
O
O
H
L
E
K
L
I
I
i
n
a
t
r
e
c
t
s
o
m
A
l
l
y
e
k
L
i
l
i
e
b
s
s
o
P
l
y
e
k
i
l
n
U
G
Gross risk assessed
before mitigation
N
Net risk assessed
after mitigation
G
G
G
N
G
G
N
N
N
N
Minor
Moderate
Major
Critical
IMPACT
Our principal risks and uncertainties
As with any business, we face risks and uncertainties on a daily
basis. It is the effective management of these that places us in
a better position to be able to achieve our strategic objectives
and to embrace opportunities as they arise.
To achieve a holistic view of the risks facing our business, both
now and in the future, we consider those that are:
– external to our business;
– core to our day-to-day operation;
– related to business change activity; and
– those that could emerge in the future.
The ‘risk radar’ below maps our principal risks against these
categories. This tool is also used to facilitate wider Executive
and Board discussions on risk, including potential emerging
risks as discussed on page 48.
Core external risk
External
Emerging areas
n
w
o
n
k
/
e
l
b
a
t
S
Economic
outlook
Changing
competitor
environment
Omni-channel
GM product
International
Distribution
centre
restructure
Food safety
and integrity
Our people
GM stock
management
Programme
and workstream
management
IT change
Multi-channel
C
h
a
n
g
i
n
g
/
n
e
w
Core operations
Internal
Business change
Overleaf are details of our principal risks and the mitigating
activities in place to address them. It is recognised that the
Group is exposed to a number of risks, wider than those listed.
However, a conscious effort has been made to disclose those
of greatest importance to the business at this moment in time
and those that have been the subject of debate at recent Board
or Audit Committee meetings.
GovernanceMarks and Spencer Group plcOverviewStrategic reviewFinancial reviewGovernanceFinancial statements and other information
Accountability continued
Annual report and financial statements 2013
46
Description
Mitigating activities
Finance: We continue to focus on maintaining a strong financial position that supports improvements to our business
Economic outlook
Economic conditions worsen or do not improve,
impacting our ability to deliver the plan
As consumers’ disposable incomes come under pressure
from price inflation and government austerity measures,
trading conditions continue to remain a challenge for our
business.
– Proactive management of costs
– Regular review of customer feedback and marketplace
positioning
– Continued focus on value proposition in the context of a
balanced product offer, including market leading innovation
– Ongoing monitoring of pricing and promotional strategies
– Regular commercial review of product performance
Brand and reputation: Our founding principles of Quality, Value, Service, Innovation and Trust continue to influence
how we do business and our reputation for being one of the UK’s most trusted brands
GM product
Continued loss of engagement with our core customer
As we seek to enhance the M&S brand, it is important that
we address our core customers’ specific needs in an
increasingly competitive market where economic uncertainty
continues to be an influencing factor.
Food safety and integrity
A food safety or integrity related incident occurs or is
not effectively managed
As a leading retailer of fine quality fresh food, it is of
paramount importance that we manage the safety and
integrity of our products and supply chain, especially in light
of the business’ greater operational complexity and the
heightened risk of fraudulent behaviour in the supply chain.
– New senior management team appointed with clear focus on
quality and style
– Prioritisation of core customer in both General Merchandise
and Marketing objectives
– Regular review of customer reaction to product and in store
experience through focus groups and in-house Customer
Insight Unit presentations
– Ongoing product and store improvements addressing specific
customer feedback
– Targeted marketing and promotional activity using customer
loyalty data
– Dedicated team responsible for ensuring that all products are
safe for consumption through rigorous controls and processes
– Continuous focus on quality
– Proactive horizon scanning including focus on fraud and
adulteration
– Established supplier and depot auditing programme
People and change: Our people are fundamental to the long term success and growth of this business
Our people
Our organisational culture and structure limit our
ability to adapt to market changes with pace
As the business strives to become a leading international,
multi-channel retailer, it is essential that our organisational
set-up allows us to respond to market changes with pace.
– External hires recruited into a number of senior roles bringing
an alternative perspective
– Robust employee engagement process for effective
communication
– Alignment of development programmes with business strategy
Programme and workstream management
Benefits from our major business programmes and
workstreams are not realised
We continue to undertake a number of major strategic
programmes to underpin the achievement of our plan; the
delivery of forecasted benefits is critical to this.
– Strategic Programme Office centrally governs the Group’s
initiatives providing regular status and benefits realisation
updates to the Executive Board
– Proactive management of programme portfolio and associated
benefits in the context of current market conditions and the
Group’s three year plan
Distribution centre restructure
We fail to effectively deliver our new national
e-commerce distribution centre
Our new national distribution centre will also service all
customer orders placed through Shop Your Way. The
implementation of this distribution centre relies on the
opening of a new facility and new business processes and
systems.
– Programme governance structures in place for all major
programmes, supported by robust project management
discipline
– Proactive identification and management of major cross
programme interdependencies
– Robust programme governance in place with clear
identification of interdependencies with other Group initiatives
– Phased approach to implementation
– Ongoing review of trajectory for achievement of agreed
operational and financial objectives
– Ongoing review of contingency requirement during facility
transition
– Engagement with external experts (as appropriate) to ensure
successful delivery of the in-house operation
GovernanceMarks and Spencer Group plc Annual report and financial statements 2013
47
Description
Mitigating activities
Selling channels: We have ambitious plans for our UK, International and Multi-channel businesses as part of our
commitment to becoming an international, multi-channel retailer
Multi-channel
A new multi-channel platform with flexibility to
support future growth is not delivered by the time our
contract with Amazon expires
To achieve our target to become a leading multi-channel
retailer and to make our brand more accessible, we are
investing in a new online platform that will provide both an
enhanced shopping experience and help to accelerate
growth.
International
Our plan to grow our international business is limited
by performance in legacy markets, the start up
profitability of new markets or substandard
infrastructure
To increase our international presence and build a leadership
position in priority markets it is crucial that we maximise our
performance in both legacy and new markets, supported by
robust systems and supply chain capability.
– Robust programme governance in place with clear
identification of interdependencies with other Group initiatives
– Phased approach to implementation
– Agreed quality assurance plan for programme delivery
– Close working with Amazon to ensure the quality of the existing
online offer is maintained during new platform delivery
– Frequent monitoring of performance, including individual
country reviews
– Particular focus on like for like performance and poor
performing stores
– Property Board approval of new store openings and monitoring
of returns on investment, plus creation of key roles to facilitate
delivery of property pipeline
– Representation of International in key Group initiatives
Day-to-day operation: We are a customer-centric business and strive to deliver an efficient and effective operation
GM stock management
Ineffective stock management control impacts either
gross margin delivery or product availability
Effective stock management is integral to ensuring that we
provide good availability to our customers, whilst minimising
the impact of markdowns on profitability.
– Stock, Sales & Intake tool used consistently across GM to plan
and manage stock levels
– Regular commercial reviews to monitor stock levels and
improve overall stock control
– Tight control of promotional activity
– UK stock ledger now live and the implementation of supporting
Business Insight reporting underway
– Established inventory control team to ensure stock data
integrity
IT change
Unforeseen impact of IT changes to new and existing
systems disrupts business operations
As we undertake a number of significant change
programmes, the rate and scale of IT change is increasing,
with potential to significantly impact our complex and
interdependent systems.
– Established Change Approval Board process
– Clear decision making process for system changes, including
the adoption of change freezes during critical trading periods
– Proactive management of cross programme dependencies
including ‘release management’ to group system changes
together
– Robust Disaster Recovery plans in place for critical business
applications
The Group Risk Profile reflects the most important risks facing the business at this point in time; these risks
receive specific attention by the Board to ensure that sufficient mitigating activity is in place to reduce net risk to
an acceptable level. The Group Risk Profile will evolve as these mitigating activities succeed in reducing the
residual risk over time, or new risks emerge. As such, we have removed a number of risks from our Group Risk
Profile since the prior year:
– Last year we included Business continuity on the Group Risk Profile in response to the heightened level of risk driven by the
UK’s summer 2012 events. With the risk now returning to a normal level it has been removed, recognising the strength of our
controls in this area
– Financial position, Corporate reputation, New store format, Key supplier failure and IT security have also been removed in
recognition of the actions taken to reduce the net risk position
The above risks remain important and they continue to be monitored as part of ‘business as usual’ activities; however, we
consider that they do not represent key risks to our business at this time and they have therefore been removed from the
Group Risk Profile.
The risks listed do not comprise all those associated with Marks & Spencer and are not set out in any order of priority. Additional
risks and uncertainties not presently known to management, or currently deemed to be less material, may also have an adverse
effect on the business.
Further information on the financial risks we face and how they are managed is provided on pages 101 to 106.
GovernanceMarks and Spencer Group plcOverviewStrategic reviewFinancial reviewGovernanceFinancial statements and other information Accountability continued
Annual report and financial statements 2013
48
Risk interconnectivity
We continue to recognise the significant interdependency between our key risks, which is in part a product of our heavily
interconnected business environment (both in terms of systems and processes). The following diagrams are based on our current
Group Risk Profile. Both are designed to highlight how changes to one risk could impact on those connected to it, and therefore on
the profile as a whole. We have incorporated a number of potential emerging risks which do not feature on our Group Risk Profile at
this point in time, but could influence our business in the longer term, illustrating how emerging risk is considered by the Board.
Programme & IT change
GM product
Omni-channel
(3)
IT change
(1)
Key:
Emerging risk
Group risk
Key:
Emerging risk
Group risk
Changing
competitor
environment
(4)
Multi-channel
(1)
GM product
(1)
Economic
outlook
(1)
Programme
and workstream
management
(2)
Distribution
centre
restructure
(1)
International
(2)
GM stock
management
(3)
1. Our new online platform (Multi-channel) and our Distribution
centre restructure are highly interdependent programmes reliant on
significant IT change. Failure to deliver these key programmes or
adequately manage associated IT change could increase the likelihood of
cumulative failure.
2. Cumulative failure in the successful delivery of our major business
programmes would significantly impact our ability to realise agreed benefits.
3. The success of the new platform in supporting our aim to be a leading
multi-channel retailer will be influenced by a number of factors, one being
our ability to keep pace with ongoing developments in the Omni-channel
world, currently considered to be a potential ‘emerging risk’.
1. To ensure GM product meets our core customers’ expectations, the
business needs to react with pace to changes in consumer preference in
the context of a challenging Economic outlook.
2. Our UK catalogue is the core of our international offer; delivering GM
product style and quality is critical in achieving our aim to grow our
International business.
3. UK and international sales performance against plan is a key contributory
factor in our ability to achieve effective GM stock management.
4. Other potential emerging risks (for example Changing competitor
environment) may impact the relevance of our GM product and our
engagement with our core customer.
Risk and the role of Internal Audit
Internal Audit & Risk comprises both the Group Risk function and Internal Audit. Whilst Group Risk facilitates and manages the
risk process that is ultimately owned by the Group Board, Internal Audit are accountable to the Audit Committee. Audit projects
are often closely aligned to the Group Risk Profile due to the risk-based approach used to prioritise audit work. The following
examples illustrate how Internal Audit work supports Group Risk whilst driving improvements to our control environment and
adding value in core business areas.
Risk: International
Risk: Multi-channel
Risk: Distribution centre restructure
Internal Audit have carried out a number of
International operational reviews including China
and the Balkans. Both audits were designed to
assess the adequacy and effectiveness of
internal controls, but varying risk profiles meant
work focused on different functional areas.
China was included on the plan due to its
strategic importance and significant growth
plans whilst the Balkans was selected following
a change in the ownership model.
In China there were opportunities to improve
operational reporting and automate controls to
improve supply chain efficiencies. In the
geographically dispersed Balkan stores there
were opportunities to improve compliance with
certain operating standards.
We reviewed the design of the payment process
for the new online platform to assess the
adequacy of the planned control environment.
We also evaluated whether proposed
programme testing would maximise operational
effectiveness. The selection of Payment Control
Design as the area of focus recognises that
payment processes carry a high level of inherent
risk. The audit identified the need to ensure that
operational processes retain flexibility as future
business requirements develop, and to ensure
that the end to end customer journey meets
expectations.
Internal Audit scheduled a review to assess the
adequacy and effectiveness of controls over
supplier compliance with product packaging
and labelling requirements; a high risk area of
the Distribution Centre Restructure programme.
The level of risk is conferred by our large and
geographically disparate supply base, with
suppliers required to achieve compliance for
distribution centre go live. The audit identified
opportunities to improve reporting processes
and procedures relating to supplier compliance
rates to focus attention on the measures that
are most critical for go live.
Management actions
Management actions from our audits are tracked to completion and the status of these actions is reported to the Audit Committee
to ensure that the risks identified are appropriately addressed. This will, in turn, further mitigate the risks included in our Group
Risk Profile.
GovernanceMarks and Spencer Group plc
Engagement
Annual report and financial statements 2013
49
Robert Swannell – Chairman
Engaging with our shareholders was a key action for the Board
in 2012/13. We are very keen to understand the views of all our
stakeholders and ensure open dialogue throughout the year,
not just ahead of the AGM season. We had another full agenda
in 2012/13. Marc Bolland, Alan Stewart and our Investor
Relations team met with representatives from over 300
investment institutions, answering their questions and keeping
them updated on our performance and plans. The level of
engagement ranged from one-on-one meetings to group
presentations and investor conference calls following our
results announcements. In addition we held a number of
investor days.
Governance event 2012
The Board is committed to ensuring that we communicate
effectively with our shareholders. We are regularly in contact
with our institutional shareholders and our annual
governance event held at our head office in June 2012
provided an opportunity to meet a significant number of our
largest investors, representatives from the influential investor
advisory companies and key industry governance specialists.
The 2012 event was attended by Robert Swannell, Chairman,
Jan du Plessis, Senior Independent Director, Jeremy
Darroch, Chairman of our Audit Committee, Steven Holliday,
Chairman of our Remuneration Committee and Mike Barry,
our Head of Sustainable Business. The event is structured
around presentations on:
– The Board
– Audit and Risk
– Remuneration
– Plan A
– Questions and Answers
The overriding objective of the meeting is to provide investors
and their governance specialists with an insight into the key
focus and considerations of the Board and its committees
and to better understand the governance measures
operating across the business.
In August investors were invited to the opening of our most
sustainable store at Cheshire Oaks; in October they were given
a focused update on our progress to become an international
multi-channel retailer and in February 2013 in Istanbul they had
the opportunity to better understand our International
operations and sourcing strategies. Investors, analysts and
press attended the Istanbul event where they received a
number of presentations and visited some of the flagship stores
in the city. All presentations from these events are available to
view at marksandspencer.com/thecompany.
In June 2012 I hosted the second of our now annual
Governance Days, details of the event are set out above.
Outside of this I also met with a number of investors and
industry representatives to answer their questions and better
understand their policies, concerns and thinking on
governance and voting. I also look to institutions to disclose
details of how they voted at AGMs on their websites.
Furthermore, we welcome engagement with institutions as the
Financial Reporting Council’s Stewardship Code continues to
be embedded.
Makinson Cowell, the capital markets advisory firm again
carried out our annual investor audit of major investors’ views
on the Company’s management and performance. This report
provides an independent view and is presented and discussed
in depth by the Board each year ahead of the AGM.
Amanda Mellor – Group Secretary
During the year we met and had a number of conversations
with investors and representatives on a variety of topics. I also
gave presentations and lectures on the way M&S approaches
governance and stewardship to industry contacts, other
company secretariat teams and to students of the Leeds
Business School. The Company has responded to a number of
BIS consultations on the changing remuneration and reporting
framework, ensuring that we help shape good regulation and
legislation.
Private shareholders continue to represent 95% of the
shareholdings on our share register. We value their opinions
and continue to actively engage with them. We circulate
shareholder topics cards with our Notice of Meeting to ensure
that the views of those shareholders unable to attend our AGM
are heard. Those returned are summarised, presented to the
Board and senior management and the Chairman addresses
the top three topics at the meeting. Many are responded to
directly. Shareholders can also email the Chairman with their
comments, write to us or telephone our helpline.
We continue our efforts to drive our private shareholders to
become more informed investors. A wealth of information is
available on our website and our Investor Relations iPad app
(available from the Apple App store) throughout the year. Our
trading statements and financial results are also emailed to
shareholders that have provided us with email addresses and
requested to receive electronic communication.
For those with smartphones, we have again used quick
response (QR) codes on our voting forms and Notice of
Meeting. These provide the reader with swift access to the
director biographies on our website.
We recognise that not all of our shareholders are online, and
that the full Annual Report or Annual Review may provide more
information than they require. We therefore suggest they
receive our smaller M&S At a Glance booklet, published with
the private investor in mind. We are keen to communicate that
we are listening to what our shareholders and customers are
telling us. We have therefore sent all shareholders a
supplementary booklet which provides some detail of the
significant changes that we have been making across our
clothing departments. This booklet also gives a preview of
some of our much anticipated Autumn collection and a
discount voucher to use in store from 25 July 2013.
We remain committed to our lost shareholder programme and
our search agent, ProSearch, continues to seek out those that
have failed to keep their details up to date. There have been
some great success stories and on many occasions individuals
have also become aware of lost shareholdings in other
companies, not just M&S. However, despite all our efforts there
are some instances where we are unable to find the
shareholder; at that stage our share forfeiture programme
steps in to utilise these funds and use them for good causes.
GovernanceMarks and Spencer Group plcOverviewStrategic reviewFinancial reviewGovernanceFinancial statements and other information Engagement continued
Annual report and financial statements 2013
50
AGM
The AGM provides the Board with the opportunity to meet
and engage directly with our shareholders, particularly our
private shareholders. The 2012 AGM was held on Tuesday 10
July, the Board and the senior management were available to
speak to before the meeting and the Chairman and
Committee Chairmen answered shareholder questions
during the formal part of the meeting, all resolutions were
passed with votes ranging from 86.2% to 99.76%.
This year’s AGM will be held at Wembley Stadium in London
on Tuesday 9 July 2013. The Notice of Meeting sets out the
schedule for the day and each of the resolutions being
proposed at the meeting. A copy of the Notice can be
downloaded at marksandspencer.com/thecompany. Once
again the meeting will be webcast live and a recording of the
meeting available on our website after the event.
Shareholders unable to attend the AGM are encouraged to
vote in advance of the meeting, online at sharevote.co.uk or
by using the proxy card sent with the Notice of Meeting.
Audit Committee
Chairman’s overview
“ We remain focused on
the audit assurance
and risk process to
support our longer term
objectives.”
Jeremy Darroch
Audit Committee Chairman
Last year the Committee’s activities involved a strategic
reappraisal of the internal audit assurance plan, continued
challenge of the Group risk process and tolerance, an internal
audit effectiveness review, continued understanding of key
business areas and their associated risks, and improving
ongoing Committee learning. Our progress is outlined in further
detail on the following page.
The Committee has closely monitored the strategic progress of
the business against the plan set out in 2010. In line with last
year, the Committee continued its usual programme of
receiving presentations from across the business to better
understand key elements of the strategic plan, the associated
risks and how these are being mitigated. These are lively,
challenging discussions where the Committee members
contribute from their own experiences. A brief overview of
these discussions is provided on the following page.
As Robert Swannell referenced in his overview, my time as a
non-executive director of M&S is coming to an end and after six
years of service I will step down from the Board on 19 June
2013 and Andy Halford will take over as Chairman of the Audit
Committee. Andy brings a wealth of knowledge from his
Investor Relations app for the iPad
As new media evolves we try to tailor our communication
platforms accordingly. With our Investor Relations
app you can view our results and trading statements,
regulatory news announcements, interviews with directors,
share price information and our TV marketing campaigns
all in one place.
To download the app, go to the Investor
section of marksandspencer.com/
thecompany and follow the link.
Those with a QR reader app can use
the link below.
business career and recent and relevant financial experience
from his role as Chief Financial Officer at Vodafone. I leave the
Committee in good hands.
External Auditor
The Committee recommended the reappointment of
PricewaterhouseCoopers LLP (PwC) for 2013/14. We believe
their independence, the objectivity of the external audit and the
effectiveness of the audit process is safeguarded and remains
strong. This is displayed through their robust internal
processes, their continuing challenge, their focused reporting
and their discussions with both management and the Audit
Committee.
We judge PwC through the quality of their audit findings,
management’s response and stakeholder feedback. No
decisions are taken by PwC over the design of internal controls
and they do not perform the role of management as part of any
of the work they undertake.
Their audit and non-audit fees are set, monitored and reviewed
throughout the year (see note 4 on page 87). We ensure that
our Auditor engagement policy, which is reviewed annually and
disclosed on our website marksandspencer.com/thecompany,
is adhered to when non audit work is commissioned. This
policy has been further strengthened in the 2012/13 financial
year.
The Committee recognises that this year the non audit fees are
higher than in previous years. This is predominantly due to two
significant projects – one HR-related and the other to advise in
the development of our integrated controls framework to
document the processes and controls across M&S’ core
business activities. In both instances other providers were
considered. However, it was felt that PwC were best positioned
GovernanceMarks and Spencer Group plc Annual report and financial statements 2013
51
to provide the services required given their deep understanding
of the business, its culture, and strategy, thus providing better
cost effectiveness without compromising their independence.
This aside, the Committee is very mindful that these were
exceptional items and aim to maintain non audit fees at a lower
level going forward.
Tenure of Auditor
PwC and its predecessor firms have been the Auditor for M&S
since the Company first listed on the London Stock Exchange
in 1926 (a breakdown of how our Auditors have evolved is
provided in the governance section of our corporate website).
To maintain the objectivity of the audit process M&S actively
supports audit partner rotation – Stuart Watson was appointed
as lead Audit partner in 2008/09 and has now come to the end
of his tenure with M&S. Stuart will be succeeded by Paul
Cragg.
The Committee recognises that length of tenure of auditors has
been a topic of much debate. It notes that the UK Governance
Code is being updated, adding a requirement that the external
Audit contract be put out to tender at least every ten years. In
view of this, the Committee intends to conduct a tender of the
Audit contract during the course of the coming year.
Effectiveness of the Audit Committee
The Board is satisfied that Jeremy Darroch, Andy Halford and
Jan du Plessis have recent and relevant financial experience.
Who is on our Committee?
Name of Director
Jeremy Darroch
(Committee Chairman)
Andy Halford2
Steven Holliday1
Martha Lane Fox
Jan du Plessis
From
1 Sept 2006
A
(retiring 19 June 2013) 5
2
5
5
5
1 Jan 2013
15 July 2004
1 June 2007
1 Nov 2008
B
5
2
4
5
5
Percentage
of meetings
attended
100%
100%
80%
100%
100%
A = Maximum number of meetings the director could have attended
B = Number of meetings the director actually attended
1) Steven Holliday was unable to attend the Committee meeting on 5 November 2012 due
to prior business commitments with National Grid.
2) Andy Halford will become Committee Chairman following Jeremy’s departure.
What has the Committee done during the year?
The Committee’s performance is reviewed each year as part
of its Board Effectiveness review. Areas for improvement are
highlighted, discussed by the Committee, and included as part
of an action plan for the coming year. During the year the
Committee:
– discussed the upcoming changes to the Governance Code
– undertook a strategic reappraisal of our internal audit and
assurance plan to ensure greater alignment with the
Company’s strategic plan
– undertook an independent review of our internal audit
effectiveness, in line with the Chartered Institute of Internal
Audit. The review was performed by RSM Tenon. It
comprised a series of one-to-one interviews with Committee
members and interview and group workshops with internal
Committee Updates
Detailed updates from the business units were introduced three
years ago. These updates are fully embedded as fixed agenda
items for each meeting, with one or more areas represented.
This year these topics covered:
EDC / NDC
– updated on the new structure to provide a faster, more agile
and lower cost service;
– updated on the strategy to consolidate our network, provide
greater capacity, improve availability to stores and service
levels to M&S Direct; and
– reviewed the key risks and mitigating actions around
implementation, testing and launch of the EDC/NDC.
stakeholders to discuss processes and procedures. A
selection of audits were also reviewed and discussed. The
output from this review has already begun to shape our
planning for 2013/14;
– discussed internal financial controls, changes in accounting
policies and impact on our financial statements
– discussed other areas of compliance, including GSCOP,
Bribery Act, M&S Code of Ethics and Behaviours and
Whistleblowing;
– discussed the learning requirements of the Committee as
part of the independent review;
– continued to receive updates from executives managing key
areas of the business, including Plan A, Business Continuity,
Customer Services, EDC/NDC, HR Shared Services, Food
Pricing and Promotions and Multi-channel. These now
account for around a quarter of the time allocated to the
meetings;
– debated our risk profile, classification and management of
key risks, identification of new emerging risks and movement
in risk tolerance as we better manage existing risks; and
– discussed the outcomes of our annual effectiveness review.
What is the action plan for 2013/14?
Looking ahead the Committee believes it is important to
remain focused on the audit, assurance and risk process
within the business, along with oversight of financial and other
regulatory requirements. The actions for 2013/14 are focused
around:
– conduct a tender of our Audit contract;
– review of three-year assurance plan, design and scope;
– risk profile and new emerging risks;
– specific risk presentations on key business areas; and
– implementing the key findings from the RSM Tenon review of
the internal audit function, including a revised Audit Charter.
Business continuity
– reviewed levels of preparedness for crisis management and
business recovery both nationally and internationally;
– reviewed changes to the out of hours call out process;
– received updates on significant national and international
incidents – ranging from fires, flooding and adverse weather
to medical evacuation, power grid failure and country-specific
national security incidents; and
– discussed enhancement of the ‘Travel Safe’ programme and
the third party integration into the Employee Travel Tracker.
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Annual report and financial statements 2013
52
Plan A – Annual
– reviewed progress made over the last year and the business’
ongoing objectives. The number of objectives has been
increased from 100 to 180, 139 of these have now been
achieved;
HR shared services
– updated on the new people system integration, including
online payslips, salary exchange, centralised HR, ways of
working and staff roster management;
– reviewed target completion dates and opportunities regarding
– discussed commitments unlikely to be achieved and the
our international operations;
external factors impacting these;
– discussed the business’ improvements in fuel efficiency and
the milestones delivered to become Carbon Neutral;
– reviewed the internal audit report regarding implementation
and embedding of the new systems within both head office
and store environments; and
– received an update on the UK sustainable learning stores,
– discussed the positive metrics and risk planning for the new
including Cheshire Oaks;
– reviewed the effectiveness of engaging consumers in Plan A;
– updated on our collaboration with the World Economic Forum
(WEF) consumer industries group, and provided an overview
on how we are actively involved in re-framing the consumer
agenda around sustainable consumption;
– discussed progress of the External Sustainable Retail
Advisory Board and its new appointments (Prof. Yunis and
Joanna Lumley); and
– updated on the significant improvement in our clothing
recycling programme (Shwopping) and the engagement of
Joanna Lumley as our global ambassador for Plan A.
Multi-channel
– updated on the Multi-channel Foundation Programme, the
complexities of integrating legacy systems and the overriding
focus on the customer and the user experience through
design and build process;
– explored how the IT Strategy was educating the business in
the practicalities of multi-channel trading;
– updated on the key risks to the project, security and the
testing process and received an overview of how these are
being managed;
– updated on how the project compares to competitor and
market activity; and
– debated operating concerns with the current platform.
people system project, especially given the significant number
of individual transactions involved.
Customer services
– received an overview of the customer experience, the
operating model, service style and customer contact
management
– updated on improvements in service levels, with particular
focus on furniture delivery where the supplier, the packaging
and the communication had all been changed resulting in a
substantial reduction in refunds in this area;
– reviewed risks and mitigating actions including training, clear
reporting and measurement and escalation procedures; and
– discussed future plans with particular focus on support for the
Multi-channel Foundation Programme.
Food pricing and promotions
– updated on the changes to the Food group covering business
guidelines, processes and methods of monitoring;
– updated on the progress of the Simply M&S range introduced
in May 2012;
– updated on the promotional strategy, brand impact and
customer perceptions;
– reviewed the findings of the internal audit report; and
– discussed overall food safety and product quality and the
development of healthy food ranges, while ensuring value is
maintained for the customer.
Assurance
On behalf of the Board, the Audit Committee examines the
effectiveness of the Group’s:
– systems of internal control, covering all material controls,
including financial, operational and compliance controls and
risk management systems, primarily through approving the
internal audit plan and reviewing its findings, reviews of the
annual and half year financial statements and a review of the
nature, scope and reports of external audit;
– management of risk by reviewing evidence of risk
assessment activity and an internal audit report on the
process; and
– action taken or to be taken to manage critical risks or to
remedy any control failings or weaknesses identified.
The Audit Committee has completed its review of the
effectiveness of the Group’s systems of internal control during
the year and up to the date of this Annual Report, in
accordance with the requirements of the revised Turnbull
Guidance on Internal Control, published by the FRC. It
confirms that no significant failings or weaknesses were
identified in the review for 2012/13. Where areas for
improvement were identified, processes are in place to ensure
that the necessary action is taken and that progress is
monitored.
Furthermore, the Committee considers the Company has
adopted appropriate accounting policies and where
necessary, made appropriate estimates and judgements. The
Committee also believes that this Annual report and accounts
provides the information necessary for shareholders to
assess the Company’s performance, business model and
strategy.
The key features of the Group’s internal control and risk
management systems that ensure the accuracy and reliability
of financial reporting include: clearly defined lines of
accountability and delegation of authority, policies and
procedures that cover financial planning and reporting,
preparing consolidated accounts, capital expenditure, project
governance and information security, and the Group’s Code
of Ethics and Behaviours.
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Nomination Committee
Chairman’s overview
Annual report and financial statements 2013
53
“ We have secured
important appointments
and overseen a number
of changes to the
composition of the Board.”
Robert Swannell
Chairman
Chairman’s Overview
The Committee has focused on strengthening, broadening,
balancing and understanding the range of skills, experience
and diversity on the Board, its Committees and below
Board level.
This year we have secured important appointments and
overseen a number of changes to the composition of the
Board. Andy Halford joined the Board in January as a non-
executive director to succeed Jeremy Darroch as Chairman of
the Audit Committee when he steps down from the Board on
19 June 2013. John Dixon, formerly Executive Director, Food
was appointed to take charge of General Merchandise,
following Kate Bostock’s departure from the Company in
September 2012. Steve Rowe was appointed to the Board to
succeed John as Executive Director, Food. Prior to his
appointment to the Board, Steve had held a number of senior
management roles, most recently as Head of Retail. Steve’s
appointment demonstrates progress against the Committee’s
focus on succession and development of internal talent below
Board level. In addition Steven Holliday has agreed to remain
on the Board for a further year to ensure continuity. On 21 May
we announced that Steven Sharp, Executive Director,
Marketing will be retiring from business. He will step down from
the Board at the 2013 AGM and will continue to work in the
business as Creative Director until 28 February 2014. Patrick
Bousquet-Chavanne will take over responsibility for marketing
and will be put forward for election to the Board as Executive
Director, Marketing and Business Development at the 2013
AGM.
In conjunction with these appointments, we have also reviewed
our Committee composition during the year, recommending
the appointment of Andy Halford as a member of both the
Nomination and Audit Committees
The lack of women on boards remains a significant focus for
companies and regulators around the world. We are committed
to increasing the participation of women across all levels of our
business, not least the Board, however, we continue to view
diversity in its broadest sense, and seek to ensure that this
remains a significant feature of our Board. We have made
progress against many of the objectives which we set out in
our Board diversity policy which we published for the first time
in last year’s Annual Report. We have reported against each of
these objectives on page 54.
Who is on our Committee?
The Committee is made up of a majority of independent
non-executive directors, details of its membership are set out
below. Its terms of reference are available to view on our
website at marksandspencer.com/thecompany.
Name of Director
Robert Swannell
(Committee Chairman)
Marc Bolland
Vindi Banga
Miranda Curtis1
Jeremy Darroch
(resigns 19 June 2013)
Martha Lane Fox
Andy Halford (appointed
1 January 2013)
Steven Holliday
Jan du Plessis
From
4 October 2010
1 May 2010
3 September 2011
3 February 2012
1 February 2006
1 June 2007
1 January 2013
15 July 2004
1 November 2008
A
4
4
4
4
4
4
1
4
4
Percentage
of meetings
attended
100%
100%
100%
75%
50%
100%
100%
100%
100%
B
4
4
4
3
2
4
1
4
4
A = Maximum number of meetings the director could have attended
B = Number of meetings the director actually attended
1) Miranda Curtis was unable to attend the Committee meeting on 2 May
2012 due to prior business commitments with Liberty Global.
2) Jeremy Darroch was unable to attend two Committee meetings due to
prior business commitments.
What has the Committee done during the year?
This year, in line with our 2012/13 action plan, the Committee
spent a significant amount of time discussing succession and
development of the executive director team whilst also
supporting the development of talent across the business.
We have also reviewed the skill set and level of ongoing
training for all directors. During the year the Committee:
– recommended the appointments of Steve Rowe and Andy
Halford to the Board and John Dixon’s appointment as
Executive Director, General Merchandise;
– discussed the appointment renewal for Martha Lane Fox
and Steven Holliday.
– undertook a review of the Board and Committee composition
in advance of and following the appointment of the new
executive and non-executive directors and considered the
retirement and tenure of existing directors;
– reviewed our progress against our stated diversity policy
objectives, and highlighted where further action is required;
– reviewed ongoing training and knowledge of all directors;
– reviewed results of the Committee’s evaluation as part of our
annual Board review process.
What is the action plan 2013/14?
– continue to refresh and evolve the non-executive directors on
the Board and ensure appropriate skills and diverse
experience;
– continue to support succession of the executive directors
and gain greater exposure to high potential talent across the
organisation;
– review the size of the Board to ensure continued efficient and
effective debate;
– continue to review ongoing inductions, training and
knowledge of all directors.
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Annual report and financial statements 2013
54
Board diversity policy
Last year we published our first Board diversity policy, which
set out our targets and objectives to ensure that diversity, in its
broadest sense, remains a central feature of the Board. This
year, in line with best practice, we are reporting against each of
the objectives in the policy:
Maintain a level of at least 30% female directors on the
Board over the short to medium term
The number of women on the Board has fallen since last year
from 31% to 21%, below the 30% target we set ourselves. This
reduction resulted from the departure of Kate Bostock and the
subsequent appointments to the Board of Steve Rowe as
Executive Director, Food and Andy Halford as a non-executive
director. However, the figure will increase to 23% following the
departure of Jeremy Darroch on 19 June 2013. A number of
women were shortlisted and interviewed for the non-executive
director position and we remain committed to increasing the
representation of women on the Board. However, all appointments
will continue to be based on merit, measured against objective
criteria and the skills and experience the individual offers.
Assist the development of a pipeline of high-calibre
candidates by encouraging a broad range of senior
individuals within the business to take on additional
roles to gain valuable board experience
A number of internal initiatives are underway to actively
develop, nurture and strengthen a pipeline of talent through the
business, including:
– a comprehensive talent review presented to the Board annually;
– the introduction of our internal Leadership Development
Service, which partners key talent across the business and
assists them in focusing and broadening their skill sets and
experience for future opportunities. Initiatives include assisting
individuals to gain valuable board experience through
non-executive roles outside M&S, primarily with NHS Trusts;
– access to International Business School training;
– executive coaching schemes;
– senior management sponsored schemes;
– non-executive director mentor schemes.
Consider candidates for appointment as non-executive
directors from a wider pool, including those with little or
no listed company board experience
The Nomination Committee works closely with our executive
search agency, JCA, in drawing up long and short lists of
candidates who offer a full range of experience and skills.
In searching for our most recent non-executive director, we
identified and interviewed a wide and diverse selection of
candidates, many of whom were women. All candidates were
measured against our agreed criteria, which in this case
included the necessary skills and experience to succeed
Jeremy Darroch as Chairman of the Audit Committee.
Ensure ‘long lists’ of potential non-executive directors
include 50% female candidates
The Board is committed to ensure high performing women
achieve greater exposure to the nomination committees of
FTSE 100 companies, which is why we have committed to
ensuring that all of our non-executive director long lists in the
short to medium term include 50% female candidates. During
the year, one independent non-executive director was
appointed to the Board. As part of that process and in
conjunction with our executive search firm we ensured that at
least 50% of the candidates on the long list were women.
Only engage executive search firms who have signed up
to the voluntary Code of Conduct on gender diversity
and best practice
The Board supports the aims of the seven principles of the
Executive Search Firms Voluntary Code of Conduct on gender
diversity. We only engage executive search firms who are
signatories to this code. We continued to work closely with JCA
during the year, who are committed to supporting us in increasing
the representation of women on the Board. The Board confirms
that JCA has no other connection with the Company.
Report annually against these objectives and other
initiatives taking place within the Company which
promote gender and other forms of diversity
The Board remains committed to reporting against the
objectives in the Policy. A number of business wide initiatives
have aimed at promoting gender and other forms of diversity:
– promoted diversity in all of its forms through the Company’s
Diversity Forum, which meets quarterly. It reviews diversity
across the business, establishes internal measures and
targets and sets future challenges (currently looking at the
pipeline of women through the business);
– hosted a series of Women’s Breakfasts. Laura Wade-Gery
hosted a roundtable discussion on women in business as part
of International Women’s Day;
– launched MBA Leadership Programme to recruit and develop
talented MBA graduates from international business schools;
– pioneered flexible working policies. M&S champions a culture
where some of the most senior employees work flexibly. For
example Belinda Earl, recently appointed as Style Director
– works a 2/3 day week;
– work with our suppliers across the globe to ensure women
are treated fairly and equally;
– proactively encourage an inclusive culture through the Marks
& Start initiatives, including the most recent Marks & Start
Logistics programme, which works specifically to get disabled
people into the workforce at our distribution centres.
Report annually on the outcome of the Board
evaluation, the composition and structure of the Board
as well as any issues and challenges the Board is facing
when considering the diverse make-up of the Company
We continue to regard the Board and Committee evaluation
process as an important means of monitoring our progress as
a Board. Further details on how we have progressed during the
year and details of the 2013/14 Action Plan can be found on
page 44. We continue to work closely on the succession of
executive directors, identifying the high-calibre talent across the
business. We have also continued the process of progressively
refreshing the make-up of the non-executive directors, both vital
elements in enhancing the Board’s diversity.
The Board diversity policy helps to keep diversity at the front of
the Board’s mind when considering its composition, whilst also
driving initiatives across the business. As we continue to pursue
our international strategy it is ever more important to ensure the
Board has international experience and outlook and that the
management is reflective of the customers and communities
which we serve. Much is talked about gender diversity and we
remain committed to achieving our target of 30% female
representation on the Board in the short to medium term. The
development of a strong and diverse pipeline of senior
management including measures to assist those talented
women throughout the business to rise to the highest levels
continues to be an area on which the Board is focused.
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Marks and Spencer Group plc
Annual report and financial statements 2013
Annual report and financial statements 2013
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55
Remuneration report
Remuneration Committee
“ We have a
straightforward and
transparent approach to
executive remuneration.”
Steven Holliday
Chairman of the Remuneration
Committee
On behalf of the Board, I am pleased to introduce our 2013
Remuneration Report, for which we will be seeking your
approval at our AGM in July 2013. The report is designed to
provide you with information demonstrating the link between
the Company’s strategy, performance and the remuneration
outcomes for our executive directors.
The subject of executive remuneration continues to be an
area of focus for shareholders and the wider public and the
Remuneration Committee is aware of the sensitivities regarding
executive pay at a time of continued economic challenge and
uncertainty. The Committee continues to meet regularly with
investors, representative bodies and Government organisations
and listens carefully to their feedback. Linking pay to company
performance and shareholder consultation is fundamental to
the remit of the Committee and we believe that we provide a
strong and independent direction on remuneration policy.
We are supportive of the Government’s drive to increase
the transparency of executive remuneration reporting and
to provide shareholders with greater influence over future
policy. The Committee has considered these proposals and
responded to the Department for Business, Innovation & Skills
(BIS) consultation on revised directors’ remuneration report
disclosures. Whilst the new regulations are yet to be finalised,
this 2013 Remuneration Report already meets a significant
number of the existing proposals, in particular with regard to
simplification, transparency, separation of past pay and future
policy and in providing remuneration scenarios and a ‘single
figure’ of remuneration on page 64.
The Company’s long-term remuneration strategy remains
to attract and retain leaders and ensure they are focused
on delivering business priorities within a framework aligned
with shareholder interests. We believe that our remuneration
policy provides appropriate incentives to reward performance
that protects the long-term interests of our stakeholders
and helps to develop an internationally successful business.
The Committee also has a particularly strong focus on the
remuneration for employees below Board level when
determining remuneration for executive directors.
The Company has a straightforward and transparent approach
to executive remuneration which is comprised of base salary,
benefits, cash and shares awarded under an annual incentive
scheme and shares awarded under a long-term incentive
scheme. Three elements of our executive remuneration
framework are performance-related and two are subject to a
three year deferral or performance period in order to encourage
executive directors to remain with the Company and align their
interests with those of shareholders. Executive directors are
also required to hold a minimum number of shares in the
Company within five years of their appointment.
The focus on performance has been further emphasised
by the introduction in 2013 of malus provisions within all the
Company’s senior share schemes. Under the terms of the
provisions, the Committee has discretion to reduce, cancel
or impose further conditions on unvested awards in
circumstances it considers appropriate, including for example,
a material misstatement of the Company’s audited results.
The Committee has reviewed the base salary levels for
executive directors in 2013 and agreed annual increases of
2% which were in line with the salary budget applying to the
broader employee population. Marc Bolland has, at his own
request, not received a salary increase since his appointment
in 2010. He again proposed not to receive any increase in
2013, which the Committee agreed.
With regard to bonus payments, the Committee carefully
considered performance during the year and the progress
made against our longer-term objectives and believes that the
bonus payments for executive directors are appropriate when
also reviewed within the context of a challenging year for the
business and wider retail sector. In addition, awards made
in 2010 under the Performance Share Plan, the Company’s
long-term incentive scheme, were assessed at the end of
the three year performance period. The threshold target was
not achieved and so all awards held by executive directors
will lapse.
The Committee has also reviewed the calibration of target
ranges for the Performance Share Plan to ensure they reflect
the Company’s focus over the next three years. As a result,
for awards granted in 2013, the EPS basis of measurement
is annualised growth in EPS. The target requires double digit
annual growth for maximum payout, which the Committee
believes would represent exceptional performance for
shareholders in the current environment.
The Committee considers that the existing senior remuneration
framework introduced in 2011 remains appropriate for the
current business priorities and external environment. Despite
another difficult trading year, the Committee believes significant
progress has been made towards the delivery of the Company’s
key strategic priorities and this is reflected in the level of
remuneration for executive directors in 2012/13.
Steven Holliday
Chairman of the Remuneration Committee
Key elements of this report
1) Senior remuneration framework: page 58
2) Summary of objectives and bonus 2012/13: page 62
3) Executive directors’ ‘single figure’ of remuneration for the
year ended 30 March 2013: page 64
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Governance
Marks and Spencer Group plc
Annual report and financial statements 2013
Annual report and financial statements 2013
56
56
Part 1: Unaudited information
Remuneration Committee
What is the remit of the Remuneration Committee?
The role of the Remuneration Committee is to make
recommendations regarding the senior remuneration strategy
and framework to the Board to ensure the executive directors
and senior management are appropriately rewarded for their
contribution to the Company’s performance, taking into account
the financial and commercial position of the Company.
The full terms of reference for the Committee can be found on
the Company’s website at marksandspencer.com. The key
responsibilities are summarised below:
– setting a senior remuneration strategy that ensures the most
talented leaders are recruited, retained and motivated to
deliver results;
– reviewing the effectiveness of the senior remuneration policy
with regard to its impact;
– considering the appropriateness of the senior remuneration
policy when reviewed against the policy and arrangements
throughout the rest of the organisation;
– determining the terms of employment and remuneration for
executive directors and senior managers including recruitment
and termination arrangements;
– approving the design, targets and payments for all annual
incentive schemes that include executive directors and senior
managers;
– agreeing the design, targets and annual awards made for all
share incentive plans requiring shareholder approval; and
– assessing the appropriateness and subsequent achievement
of performance targets relating to any share incentive plan.
In carrying out these responsibilities, the Committee seeks
independent external advice as necessary and continued to
retain the services of Deloitte LLP during the year. The
Committee appointed Deloitte as independent advisors in 2010
following a competitive tender process. Deloitte provide
independent commentary on matters under consideration by
the Committee and updates on legislative requirements, best
practice and market practice. The Committee is comfortable
that the Deloitte engagement partner and team provide
objective and independent remuneration advice to the
Committee and do not have any connections with
Marks and Spencer Group plc that may impair their
independence. In addition to providing advice on executive
remuneration, Deloitte has provided tax, consultancy and
internal audit advice to the Group in the financial year.
Deloitte is a founding member of the Remuneration
Consultants Group and voluntarily operates under the code of
conduct in relation to executive remuneration consulting in the
UK. The code of conduct can be found at
www.remunerationconsultantsgroup.com.
The Committee also seeks internal support from the Chairman,
Group Secretary, Director of Human Resources and Head of
Reward as required. All may attend the Committee meetings
by invitation but are not present for any discussions that relate
directly to their own remuneration.
The Committee also regularly reviews external survey and
bespoke benchmarking data including that published by
Aon Hewitt (through the New Bridge Street consultancy),
KPMG, PwC and Towers Watson.
How does the Committee engage with shareholders?
The Remuneration Committee is committed to an open and
transparent dialogue with shareholders on the issue of
executive remuneration. During the last comprehensive review
of the framework in 2010/11, the Committee actively engaged
widely with key shareholders and shareholder representative
bodies, and the views expressed in consultation were taken
into account in shaping the current framework. When reviewing
the senior remuneration framework each year, the Committee
continues to take into account the views and guidance
expressed by shareholders and shareholder bodies. The
Remuneration Committee Chairman is available to answer
questions at the AGM and the answers to specific questions
are posted on the Company website.
What was the level of support for the 2011/12
Directors’ Remuneration Report?
At the Annual General Meeting on 10 July 2012, 96.26% of
shareholders voted in favour of approving the Directors’
Remuneration Report for 2011/12, which the Committee
believes illustrates the strong level of shareholder support for
the senior remuneration framework:
Against: 3.74%
For: 96.26%
GovernanceMarks and Spencer Group plc
Annual report and financial statements 2013
57
– significant consideration of institutional investors’ current
guidelines on executive compensation;
– assessment of the external environment surrounding the
Company’s current remuneration arrangements;
– consideration of external market developments and best
practice in remuneration;
– review of Committee performance in 2012/13; and
– review of Committee terms of reference.
Other items:
– responded to the Department of Business, Innovation & Skills
(BIS) consultation on revised directors’ remuneration report
disclosures;
– consideration of the impact of the Scottish Limited
Partnership (SLP) change in accounting treatment on the
2012/13 Annual Bonus Scheme targets and Performance
Share Plan targets;
– review of and agreement to amendments to share plan rules
to support the Company’s international strategy;
– review of and agreement to remuneration packages for new
executive directors and new senior managers; and
– consideration and introduction of a ‘malus’ clause within the
Company’s share plan rules.
What is the action plan for 2013/14?
As a result of a full review of the Committee’s performance and
effectiveness, the following actions have been agreed for
2013/14:
– stakeholder engagement and the remuneration debate;
– company-wide remuneration offering and balance to the rest
of the organisation;
– clarity of remuneration disclosures;
– ongoing remuneration training of Committee members; and
– Committee succession and handover.
Effectiveness of the Remuneration Committee
Who’s on our Committee?
The following independent non-executive directors were
members of the Committee during 2012/13:
Member
Steven Holliday
(Committee
Chairman)
Vindi Banga1
Miranda Curtis2
Jan du Plessis
From
15 July 2004
1 Sept 2011
1 Feb 2012
8 Sept 2009
A
7
7
7
7
Percentage
of meetings
attended
100%
86%
71%
100%
B
7
6
5
7
A = Maximum number of meetings the director could have attended.
B = Number of meetings the director actually attended.
1 Vindi Banga was unable to attend the Committee meeting on 20 April 2012 due to prior
business commitments with Clayton Dubilier & Rice.
2 Miranda Curtis was unable to attend the Committee meetings on 2 May 2012 due to
personal reasons and on 13 March 2013 due to prior business commitments with
Liberty Global Inc.
What has the Committee done during the year?
In line with its remit, the following key matters were considered
by the Committee during the year:
Regular items:
– approval of the Directors’ Remuneration Report for 2011/12
and review of the AGM voting outcome for the report;
– annual review of all executive directors’ and senior managers’
base salaries and benefits in line with Company policy and
approval of any salary increases;
– review of achievement of Annual Bonus Scheme profit against
target;
– review of achievement of executive directors’ individual
objectives for 2012/13;
– review of the design and targets for the 2013/14 Annual
Bonus Scheme including the approval of individual objectives
for executive directors;
– review and approval of all awards made under the
Performance Share Plan taking into account the total value of
all awards made under this plan;
– half year and year end review of all share plan performance
against targets;
– approval of the vesting level for the 2010 Performance Share
Plan awards;
– consideration of the performance measures and targets to be
applied to the 2013 Performance Share Plan awards;
– clear articulation of the Committee’s reasoning and
consideration for vesting and payment levels to executive
directors;
– review of director shareholding guidelines and achievement of
these for each executive director;
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58
Senior remuneration framework
What are the key elements of remuneration for executive directors?
The table below summarises the key remuneration elements for executive directors:
Fixed remuneration
2013/14 policy
Base pay
Reviewed against:
– salary levels in appropriate comparator companies e.g. major retailers; FTSE 25 – 75
– Company performance, market conditions and economic climate
– role, responsibility and performance of the individual director
– level of pay awards in the rest of the business
Benefits – including pension salary
supplement; life assurance; car/car
allowance; employee discount
– provided on a market-competitive basis
– aligned to the remuneration framework for all employees
Variable remuneration
2013/14 policy
Annual Bonus Scheme
Deferred Share Bonus Plan
Performance Share Plan
– Group PBT with an individual element linked to delivery of key strategic objectives
– stretching targets to achieve maximum payment
– drives profitability and strategic change across the organisation
– aligned to the bonus structure for all employees
– aligned to shareholder interests through annual financial performance and delivery of
business strategy
– compulsory part-deferral of annual bonus into shares
– shares vest after three years subject to continued employment
– links individual reward with long-term Company performance
– aligned to shareholder interests through long-term financial performance and delivery of
business strategy
– malus provision including material misstatement introduced for 2013/14
– primary long-term incentive plan
– targets based on annualised Earnings Per Share (EPS) growth, Return on Capital Employed
(ROCE) and revenue growth across the UK, International and Multi-channel businesses
– links individual reward with long-term Company performance
– aligned to shareholder interests through long-term financial performance and delivery of
business strategy
– malus provision including material misstatement introduced for 2013/14
How is the senior remuneration framework aligned to
Company strategy?
A comprehensive review of the senior remuneration framework
was carried out in 2010/11 to ensure that it was aligned to the
Company strategy. The Committee actively engaged with
shareholders and continues to consult regularly on the broader
remuneration debate.
The Committee reviewed this framework in 2013 and
considered the existing incentive arrangements in the context
of both the business strategy and current external guidelines
for executive remuneration. Following this review, the
Committee concluded that the current framework continues to
ensure that the Company is able to attract and retain leaders
who are focused and motivated to deliver the business
priorities and remains aligned to shareholder interests.
The Committee reviews the total remuneration of each
executive director against that of executives from comparator
companies to ensure that total remuneration levels are
competitive. The balance between fixed and variable
remuneration elements is carefully considered.
Incentive plans take account of risk and drive behaviours in line
with the Company’s high ethical standards. All executive
directors and senior managers have individual objectives
aligned to the business strategy, operating plan and Plan A
– the Company’s environmental and ethical plan.
The Committee also considers a range of internal factors,
including the remuneration policy and arrangements
throughout the rest of the organisation. The remuneration
framework for executive directors is aligned to that of senior
managers, with the same short-term and long-term incentive
arrangements including performance measures, other than the
size of awards and maximum potentials.
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Annual report and financial statements 2013
59
What are the indicative values of the remuneration packages for each executive director?
The charts below provide an indication of what could be received by each of the executive directors under the remuneration policy
for 2013/14. A substantial proportion of the remuneration packages are performance-related and therefore this is illustrated for
three different performance scenarios (Fixed, Target, Maximum) described in more detail below. These charts are illustrative as the
actual value which will ultimately be received will depend on business performance in the year 2013/14 (for the Annual Bonus
Scheme) and in the three year period to 2015/16 (for the Performance Share Plan (PSP)), as well as share price performance to the
date of the vesting of the Deferred Share Bonus Plan and PSP awards in 2016.
Marc Bolland
John Dixon
Steve Rowe
6,000
5,000
4,000
0
0
0
£
3,000
2,000
1,000
0
£5,700
43%
34%
23%
£2,775
18%
35%
47%
£1,313
100%
Fixed
Target
Maximum
6,000
5,000
4,000
0
0
0
£
3,000
2,000
1,000
£796
100%
0
Fixed
£3,496
43%
34%
23%
£1,696
18%
35%
47%
Target
Maximum
6,000
5,000
4,000
0
0
0
£
3,000
2,000
1,000
£709
100%
0
Fixed
£3,072
43%
34%
23%
£1,497
18%
35%
47%
Target
Maximum
Steven Sharp
Alan Stewart
Laura Wade-Gery
6,000
5,000
4,000
0
0
0
£
3,000
2,000
1,000
£898
100%
0
Fixed
£3,998
£1,931
18%
36%
46%
43%
34%
23%
Target
Maximum
6,000
5,000
4,000
0
0
0
£
3,000
2,000
1,000
£757
100%
0
Fixed
£3,362
43%
34%
23%
£1,625
18%
36%
47%
Target
Maximum
6,000
5,000
4,000
0
0
0
£
3,000
2,000
1,000
£714
100%
0
Fixed
£3,198
43%
35%
22%
£1,542
18%
36%
46%
Target
Maximum
Includes all elements of fixed remuneration:
– base salary (for 2013, as shown in the table on page 68);
– pension benefits (using the salary supplement policy on page 60 and, for applicable individuals, also inclusive of a value reflecting deferred participation in the
Company’s defined benefit arrangements); and
– benefits (using the value for 2012/13 included in the single figure table on page 64).
Annual Bonus Scheme. Represents the potential value of the annual bonus for 2013/14. Half of any bonus would be deferred into shares for three years and this is
included in the value shown. No share price growth is assumed.
Performance Share Plan. Represents the potential value of the PSP to be awarded in 2013, which would vest in 2016 subject to the EPS, Revenue and ROCE targets
(disclosed on page 61). No share price growth is assumed.
Fixed
Target
Fixed remuneration only. No vesting under the Annual Bonus Scheme and Performance Share Plan.
Includes the following assumptions for the vesting of the incentive components of the package:
– Annual Bonus Scheme: 50% of maximum
– Performance Share Plan: 20% of maximum
Maximum
Includes the following assumptions for the vesting of the incentive components of the package:
– Annual Bonus Scheme: 100% of maximum
– Performance Share Plan: 100% of maximum
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60
What are the details of fixed remuneration?
Executive directors
Salary
In reviewing executive director salary levels for 2013, the
Committee took into account Company performance in 2012/13,
external market data and the salary review principles applied to
the rest of the organisation to ensure a consistent approach.
Marc Bolland has, at his own request, not received a salary
increase since his appointment in 2010. He again proposed not
to receive any increase in 2013, which the Committee agreed.
John Dixon and Steve Rowe received salary increases on
appointment to their new roles in October 2012, John’s to
reflect the additional scope and responsibility and Steve’s to
reflect his promotion to executive director. Neither received a
further increase in January 2013. Steven Sharp, Alan Stewart
and Laura Wade-Gery received increases of 2% in January
2013 in line with the Company’s broader salary review policy.
The current annual salaries for executive directors are shown in
the Contract terms table on page 65. The next planned salary
review for all executive directors is in January 2014.
Benefits
With the exception of the CEO, executive directors receive a
25% salary supplement in lieu of membership of the Group
Pension Scheme. The CEO receives a salary supplement of
30%. Executive directors also receive life assurance provided
through a separate policy. In addition, each executive director
receives a car or car cash allowance and is offered the benefit
of a driver. Executive directors also receive employee product
discount in line with all other employees. The value of the
benefits and allowances for each director is shown within the
Directors’ emoluments table on page 68.
Chairman
The fee for the Chairman is determined by the Remuneration
Committee and reflects the commitment, demands and
responsibility of the role. The fee is paid monthly in cash
inclusive of all committee roles and is not performance-related
or pensionable. No increase has been awarded since the
Chairman’s appointment in 2010 and following the 2013 fee
review it was decided not to increase the fee at this time. The
Chairman is entitled to the use of a car and driver provided by
the Company. The Chairman also receives employee product
discount in line with other employees.
Non-executive directors
The fees for non-executive directors are determined by the
Chairman and executive directors. Fees are set at an
appropriate level to attract and retain individuals with the
necessary experience, knowledge and skills to ensure the
Board is able to carry out its duties effectively. The fees
recognise the scope of the role and time commitment required.
Fees are paid monthly in cash and are not performance-related
or pensionable. Non-executive directors receive employee
product discount in line with other employees. No other
benefits are provided.
Non-executive director fees were revised in 2010 and no further
increases were awarded in 2011 or 2012. Following the 2013
fee review it was decided not to increase the current fees.
The current fee structure is as follows:
Basic annual fee
Committee Chairman
Senior Independent Director
£70,0001
£15,0002
£100,0001
1 Inclusive of all committee memberships.
2 Audit and Remuneration Committee only and in addition to the basic annual fee.
The annual fees for non-executive directors are shown in the
Contract terms table on page 65. The fees paid during the year
to each non-executive director are shown in the Directors’
emoluments table on page 68.
What are the details of the short-term and long-term
incentive schemes (variable remuneration)?
Annual Bonus Scheme: short-term incentive
Deferred Share Bonus Plan: long-term incentive
Structure for 2013/14
The Annual Bonus Scheme is reviewed annually and is
structured to drive profitability and individual performance
across the organisation. The bonus potential for executive
directors is up to 200% of salary for ‘maximum’ performance.
There is compulsory deferral into shares for all senior
managers. Shares vest after three years subject to continued
employment. For executive directors, the deferral into Company
shares equates to 50% of their bonus amount.
In line with best practice, malus provisions have been
introduced to all the Company’s senior share schemes; the
Deferred Share Bonus Plan, Performance Share Plan and
Executive Share Option Scheme. The provisions will take effect
for all awards granted from 2013 onwards. Under the terms of
the provisions, the Committee will have the discretion to
reduce, cancel or impose further conditions on awards in
circumstances it considers appropriate. Such circumstances
include, but are not limited to, a material misstatement of the
Company’s audited results. Further details of the Deferred
Share Bonus Plan can be found in note 13 to the financial
statements on page 96 of the Annual Report.
The Annual Bonus Scheme performance measures are
unchanged for 2013/14. The primary performance measure is
Underlying Group Profit Before Tax (Group PBT). 60% of the
annual bonus is determined by performance against
demanding profit targets set by the Committee at the start of
the year. 40% of the annual bonus is determined by
performance against individual objectives independent of
Group PBT.
The Committee believes this approach provides an appropriate
focus on annual profit targets whilst also ensuring that directors
focus on driving business changes that support the Company’s
medium-term strategy.
Group PBT targets
Group PBT targets have again been set taking into
consideration the Company’s own internal operating plan,
external forecasts for the retail sector and analysts’ profit
forecasts. This means that there will need to be significant
outperformance of the operating plan in order to achieve the
highest payment levels.
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61
Individual objectives
2013/14 individual objectives will continue to be aligned to the
Company’s strategic plan and the specific programmes that
support it.
Challenging and quantifiable individual objectives are set which
are subject to rigorous review by the Committee, both at the
start of the year when set and the end of the year when
assessments of performance are undertaken and at any time
during the year should there be a change in director
accountabilities.
Each executive director will be assessed on targets set in
relation to four clearly defined business objectives. Two
objectives will be ‘collective’ so that all directors are focused on
these common goals encouraging collaboration across the
senior management group. Within these, each director will have
specific actions or targets. The two ‘collective’ objectives will
continue to be:
– delivery against UK operating plan cost targets; and
– progress against Plan A goals.
The remaining two individual objectives will relate to specific
programmes relevant to each executive director’s business
area or to key operating challenges. These include objectives
that are focused on continuing to drive Multi-channel and
International growth, availability, innovation and brand
recognition.
The Committee has agreed quantifiable performance metrics
for each objective. ‘Threshold’ and ‘stretch’ targets must be
achieved to demonstrate value-added performance.
No individual objective element of the bonus can be earned
unless a ‘threshold’ level of Group PBT has been achieved,
subject to the Committee’s overall assessment of the
performance of the business during the period. This maintains
the important principle that below a defined level of
performance, no bonus will be earned. The Group PBT
‘threshold’ for this purpose is set below the entry point for
Group PBT performance, which is aligned to the bonus policy
for the rest of the organisation.
Performance Share Plan structure for 2013/14
The Performance Share Plan (PSP) continues to be the primary
long-term incentive for executive directors and senior
managers in the Company. The maximum award opportunity is
300% of salary, however, the Committee’s intention is that
awards will normally be referenced to 250% of salary. A malus
provision will take effect for all awards granted from 2013 as
previously described on page 60 within the Annual Bonus
Scheme structure for 2013/14.
The Committee reviewed the PSP performance measures and
their alignment to business strategy in 2013 and concluded that
the balance of EPS, Revenue and ROCE continues to
appropriately reflect the key drivers of shareholder value. For
2012 awards, the EPS measure was based on cumulative
underlying basic EPS over the three year performance period.
For 2013 awards, the EPS measure is annualised growth in
underlying basic EPS which the Committee believes is a more
appropriate method of assessing company performance over
the next three years.
Performance Share Plan Awards 2013/14
For awards made in 2013/14, the performance metrics and targets are as follows:
Performance metric
Commercial rationale
Basis of measurement
Earnings Per Share (EPS) Rewards focus on bottom-line
performance
Based on annualised underlying basic EPS growth over
three-year performance period
Return on Capital
Employed (ROCE)
Revenue
Rewards efficient use of capital
Based on average ROCE % over three year performance
period against pre-determined targets
Rewards top line growth in line with
business strategy
Based on strategic growth targets:
– 10% on UK
– 10% on International
– 10% on Multi-channel
Weighting (% of total award)
‘Threshold’ performance
‘Maximum’ performance
% Vesting1
Annualised EPS
growth (%)
20%
100%
50%
5%
12%
ROCE (%)
20%
15.0%
18.5%
Revenue (FY16 – £)
UK2
Multi-channel3
International4
10%
£8,900m
£9,600m
10%
£900m
£1,100m
10%
£1,400m
£1,800m
1 % Vesting is a straight line between ‘threshold’ and ‘maximum’ performance.
2 Excluding Multi-channel.
3 Net of VAT / gross of returns.
4 Excluding Multi-channel / including Republic of Ireland.
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62
Executive Share Option Scheme: long-term incentive
The Executive Share Option Scheme was adopted at the 2005
AGM but there is currently no intention to use the scheme on a
regular basis. No grants were awarded under the Scheme for
2012/13. The Committee will continue to review the use of the
scheme and retain the flexibility to grant awards if appropriate.
A malus provision will take effect for any awards granted
from 2013.
All-Employee Share Schemes: long-term incentive
Sharesave, the Company’s Save As You Earn (SAYE) scheme,
was approved by shareholders at the 2007 AGM for a ten year
period. Executive directors can participate in the scheme which
is open to all employees.
What were the outcomes in 2012/13 for the short-term and long-term incentive schemes?
Annual Bonus Scheme outcome for 2012/13
In 2012/13, 60% of the executive directors’ bonus was based on Group PBT performance with the remaining 40% based on the
achievement of individual objectives, independent of Group PBT (and subject to achieving the ‘threshold’ Group PBT target).
Summary of bonus objectives
Financial
measure
Collective
objectives
Examples of
achievement
against
business area
objectives
Marc Bolland
John Dixon
Steve Rowe
Steven Sharp
Alan Stewart
Laura Wade-Gery
Group PBT
Group PBT
Group PBT
Group PBT
Group PBT
Group PBT
Total UK operating
costs
Total UK operating
costs
Total UK operating
costs
Total UK operating
costs
Total UK operating
costs
Total UK operating
costs
GM & Food
operating costs
Food operating
costs
Marketing operating
costs
Finance, IT and
Logistics operating
costs
Multi-channel
operating costs
Individual Plan A
objectives
Individual Plan A
objectives
Individual Plan A
objectives
Individual Plan A
objectives
Individual Plan A
objectives
Individual Plan A
objectives
Increased online and
International
GM and Food sales
Increased food
innovation and
focused on value
Continued food
innovation and
focused on value
Improved in-store
presentation
Enhanced reporting
for information and
planning
Increased UK online
sales and customer
satisfaction
Restructured
Executive Board and
strengthened senior
leadership team
Restructured GM
senior leadership
team
Increased
International Food
sales
Developed marketing
strategy to increase
online awareness
Improved supply
chain and delivered
new distribution
centre
Launched new
International websites
Launched M&S
Bank
Delivered new
multi-channel platform
key milestones
Group PBT objective (60% of total)
Group PBT targets were set by the Committee at the start of the year with reference to the Company’s own internal operating
plan, external forecasts for the retail sector and analysts’ profit forecasts. Targets were designed to be stretching in order to
increase motivation and focus and drive desired behaviours.
Following the conclusion of dialogue with the Financial Reporting Review Panel (FRRP), the Company changed the terms of the
Scottish Limited Partnership (SLP) as detailed on page 95 of the Annual Report. As a result of the revised operating plan, the
2012/13 Annual Bonus Scheme targets were recalibrated and the Committee agreed revised PBT targets.
The underlying Group PBT performance was £665.2m which was above the minimum target set by the Remuneration Committee.
As a result, the percentage of salary for the Group PBT objective was 33% for all executive directors.
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63
Business area individual objectives (20% of total)
The remaining two objectives related to specific programmes
relevant to each executive director’s business area for which
they have primary responsibility.
Performance against these objectives was reviewed by the
Committee against quantifiable individual performance metrics
that were established for each director.
Based on the Committee’s assessment of performance against
these individual targets, payouts to executive directors were in
the range 8.5% – 13% of maximum bonus opportunity for this
element of the bonus, equating to 17% – 26% of salary.
Summary of bonus earned for 2012/13
The Committee believes that the level of bonus payout
appropriately reflects the significant progress made in 2012/13
towards the achievement of the Company’s long-term strategic
goals. The Committee, having carefully considered
performance during the year, further believes that the bonus
payments made are appropriate in the context of a challenging
year for the business and the wider retail sector.
The table below summarises the bonus payments for each
executive director for 2012/13:
Individual objectives (40% of total)
Each executive director had four individual objectives for
2012/13, each accounting for 10% of the total bonus.
‘Collective’ individual objectives (20% of total)
Two objectives were ‘collective’ i.e. individual targets set for
each director under shared objectives so that all directors
focused on common goals encouraging collaboration across
the senior management team. The Committee reviewed the
performance of each executive director against the quantifiable
performance targets that were set at the start of the year.
– Delivery against UK operating plan cost targets:
As set out on page 34 of the Annual Report, we managed
the businesses prudently in a challenging market.
Based on the Committee’s assessment of performance
against the individual targets under this objective, payouts to
executive directors were in the range 7.5% – 9% of
maximum bonus opportunity for this element of the bonus,
equating to 15% to 18% of salary.
– Delivery against Plan A commitments:
As detailed on page 32 of the Annual Report, we continued
our progress against our 2015 Plan A targets.
Based on the Committee’s assessment of performance
against the individual targets under this objective, payouts to
executive directors were in the range 4% – 9% of maximum
bonus opportunity for this element of the bonus, equating to
8% – 18% of salary.
Summary of bonus earned in 2012/131
Maximum bonus potential
Actual bonus earned
Marc Bolland
John Dixon
Steve Rowe2
Steven Sharp
Alan Stewart
Laura Wade-Gery
Group PBT
Target
’Collective’
objectives
Business area
objectives
Total bonus earned
120%
33%
33%
33%
33%
33%
33%
% of salary
40%
26%
34%
34%
25%
28%
26%
40%
26%
24%
17%
19%
24%
26%
% of salary
200%
85%
91%
84%
77%
85%
85%
£000
–
829
546
221
531
492
469
% of maximum
bonus potential
–
42.5%
45.5%
42.0%
38.5%
42.5%
42.5%
1 Kate Bostock was not entitled to receive any bonus for 2012/13.
2 The bonus amount for Steve Rowe reflects his period of service as an executive director.
Performance Share Plan outcome for 2012/13
2010 Award Final Measurement
The underlying basic EPS figure for 2012/13 was 32.7p which was below the ‘threshold’ targets of RPI + 3% for awards of up to
200% of salary and RPI + 4% for awards of between 200% and 400% of salary. As a result, there was no vesting of awards made
in 2010 and these will lapse in full.
The targets for 2010 awards are shown in the table below:
2010 Awards
Award
2010
(for awards up to 200% of salary)
(for awards between 200% and 400% of salary)
20% vesting
3%
4%
100% vesting
9%
12%
EPS for start of scheme1
30.0p
30.0p
1 The EPS for the start of the 2010 scheme is based on the 52 week result, ensuring a like-for-like measure.
Average annual EPS growth in excess of inflation (RPI)
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Annual report and financial statements 2013
64
The targets for outstanding 2011 and 2012 awards are shown in the table below:
2011 and 2012 Awards
Weighting (% of total award)
2011 Award
‘Threshold’ performance
‘Maximum’ performance
2012 Award
‘Threshold’ performance
‘Maximum’ performance
% Vesting1
20%
100%
20%
100%
Cumulative
EPS (p)
50%
110p
130p
110p
130p
ROCE
(%)
20%
17.0%
18.5%
15.0%
18.5%
Revenue (£)5
UK2
10%
Multi-channel3
10%
International4
10%
£9,200m
£9,900m
£8,900m
£9,600m
£700m
£1,000m
£800m
£1,000m
£1,100m
£1,400m
£1,300m
£1,700m
1) % Vesting is a straight line between ‘threshold’ and ‘maximum’ performance.
2) Excluding Multi-channel.
3) Net of VAT/gross of returns.
4) Excluding Multi-channel/including Republic of Ireland.
5) FY 2014 for 2011 award and FY 2015 for 2012 award.
The above targets to do not take into consideration changes in accounting treatments adopted by the Group after the award date. The impact of these changes will be taken into
consideration when performance is assessed at the end of the three year performance period.
‘Single figure’ of remuneration 2012/13
The Committee notes that BIS intends to introduce the requirement for disclosure of a ‘single figure’ of remuneration received in
the year. There are some technical challenges in arriving at a single value, particularly concerning the timing and value of awards
which may not be aligned with the financial year end. However, it is hoped that the introduction of this figure in this year’s Report
will help shareholders’ understanding and demonstrate the Committee’s commitment to transparent reporting.
The directors’ ‘single figure’ of remuneration for 2012/13
Chairman
Robert Swannell
Chief Executive Officer
Marc Bolland
Executive directors
John Dixon
Steve Rowe3
Steven Sharp
Alan Stewart
Laura Wade-Gery
Non-executive directors
Vindi Banga
Miranda Curtis
Jeremy Darroch
Martha Lane Fox
Andy Halford3
Steven Holliday
Jan du Plessis
Directors retiring from the
Board during the year
Kate Bostock3
Salary/fees
£000
Benefits
£000
Pension
benefits
£000
Total
fixed pay
£000
Bonus1
£000
PSP
vested2
£000
Total
variable pay
£000
450
975
581
263
679
570
544
70
70
85
70
18
85
100
20
45
43
29
36
33
24
–
–
–
–
–
–
–
–
470
293
148
69
170
143
136
–
–
–
–
–
–
–
1,313
772
361
885
746
704
70
70
85
70
18
85
100
306
33
76
415
–
829
546
221
531
492
469
–
–
–
–
–
–
–
0
–
0
0
0
0
0
0
–
–
–
–
–
–
–
0
–
829
546
221
531
492
469
–
–
–
–
–
–
–
0
Total
2013
£000
470
2,142
1,318
582
1,416
1,238
1,173
70
70
85
70
18
85
100
415
1 The annual bonus was based on performance against PBT and individual targets for 2012/13 (see detail on pages 62 and 63). Half of this amount will be deferred into Company
shares for a period of three years.
2 The PSP was awarded in 2010 and was based on EPS performance targets in the three year period to 30 March 2013, in accordance with the table on page 63. As the ‘threshold’
target was not met, this award will lapse in full.
3 The total amounts for Steve Rowe and Kate Bostock reflect the fact that they were executive directors for six months of 2012/13. The total amounts for Andy Halford reflect three
months for 2012/13.
GovernanceMarks and Spencer Group plcRemuneration report continued
Annual report and financial statements 2013
65
Board appointments and contracts
The contract terms and current annual salaries/fees for all members of the Board are set out in the table below:
Contract terms and current annual salaries/fees for all current members of the Board
Name
Chairman
Robert Swannell
Chief Executive Officer
Marc Bolland
Executive directors
John Dixon
Steve Rowe
Steven Sharp
Alan Stewart
Laura Wade-Gery
Non-executive directors
Vindi Banga
Miranda Curtis
Jeremy Darroch
Martha Lane Fox
Andy Halford
Steven Holliday
Jan du Plessis
Date of
appointment
Notice period/unexpired
term
Basic salary/
fee
£000
Committee chair/
SID fee
£000
Current annual
salary/fee
£000
Total 2012
£000
Change
£000
23/08/2010
6 mths / 6 mths
01/05/2010
12 mths / 6 mths
09/09/2009
01/10/2012
08/11/2005
28/10/2010
04/07/2011
01/09/2011
01/02/2012
01/02/2006
01/06/2007
01/01/2013
15/07/2004
01/11/2008
12 mths / 6 mths
12 mths / 6 mths
12 mths / 6 mths
12 mths / 6 mths
12 mths / 6 mths
3 mths / 3 mths
3 mths / 3 mths
3 mths / 3 mths
3 mths / 3 mths
3 mths / 3 mths
3 mths / 3 mths
3 mths / 3 mths
450
975
600
525
689
579
552
70
70
70
70
70
70
100
–
–
–
–
–
–
–
–
15
–
–
15
–
450
975
600
525
689
579
552
70
70
85
70
70
85
100
450
975
562
–
675
567
541
70
70
85
70
–
85
100
–
–
38
–
14
12
11
–
–
–
–
–
–
–
What are the current service contracts and terms of
employment for directors?
Executive directors
All executive directors and senior managers have service
contracts that can be terminated by the Company giving
12 months’ notice and the employee giving six months’ notice.
The Company retains the right to terminate the contract of any
executive director summarily, in accordance with the terms of
their service agreement, on payment of a sum equal to the
contractual notice entitlement of 12 months’ salary and specified
benefits. In line with best practice, the Company reserves the
right on termination to make phased payments which are paid in
monthly instalments and subject to mitigation. Entitlement to
participate in share schemes ceases on termination.
Chairman
The Chairman has an agreement for service which requires six
months’ notice by either party.
Non-executive directors
Non-executive directors have an agreement for service for an
initial three-year term which can be terminated by either party
giving three months’ notice.
What were the changes to the Board during the year?
Directors appointed to the Board
John Dixon
John Dixon was appointed Executive Director, General
Merchandise on 1 October 2012 on a salary of £600,000. John
was originally appointed to the Board as Executive Director,
Food on 9 September 2009. His remuneration package is
consistent with the structure for all executive directors and the
full terms are disclosed in this report.
Steve Rowe
Steve Rowe was appointed Executive Director, Food on
1 October 2012 on a salary of £525,000. His remuneration
package is consistent with the structure for all executive
directors and the full terms are disclosed in this report.
Andy Halford
Andy Halford was appointed to the Board of Marks and Spencer
Group plc as a non-executive director on 1 January 2013. He is
a member of the Audit and Nomination Committees. He
receives a basic fee of £70,000 in line with the structure set out
on page 60.
GovernanceMarks and Spencer Group plcOverviewStrategic reviewFinancial reviewGovernanceFinancial statements and other information Annual report and financial statements 2013
66
Directors retiring from the Board
Kate Bostock
Kate Bostock, Executive Director, General Merchandise retired
from the Board and ceased to be an employee of the Company
on 1 October 2012. She received salary and benefits up to her
leaving date and received no further payments on leaving other
than an amount in respect of accrued but untaken holiday
entitlement. The Remuneration Committee exercised its
discretion and no payments were made under either the
2011/12 or the 2012/13 Annual Bonus Scheme.
The status of her outstanding long-term incentive awards is
shown in the table on page 70. In accordance with the terms of
the Performance Share Plan, Kate was entitled to all vested
options granted in 2009 under the Performance Share Plan
(which vested in June 2012), but all other outstanding awards
made under this Plan lapsed on leaving. With regard to
outstanding awards made under the Deferred Share Bonus Plan,
the Remuneration Committee exercised its discretion and on
leaving she received the full entitlement of options granted in
2010 and the award made in 2011 was pro-rated for time held
from date of grant to her leaving date. No award was made in
2012 under the Deferred Share Bonus Plan.
What will be the changes to the Board in 2013/14?
Directors joining the Board
Patrick Bousquet-Chavanne
Patrick Bousquet-Chavanne will join the Board as
Executive Director, Marketing & Business Development on
10 July 2013. He will receive an annual salary of £525,000 and
is entitled to receive benefits and participate in the executive
incentive schemes in line with the framework for other
executive directors.
Directors retiring from the Board
Steven Sharp
Steven Sharp, Executive Director, Marketing will retire from the
Board following the Annual General Meeting on 9 July 2013
and will continue to work in the business as Creative Director
until 28 February 2014 when he will leave the Company. As a
result, Steven will be paid in line with his contractual
arrangements. He will not receive any lump sum payment in
lieu of notice, but will be entitled to receive a payment under
the Annual Bonus Scheme, pro-rated for the months worked in
2013/14. Steven will not receive any award to be made in 2013
under the Company’s Performance Share Plan. In line with the
Plan rules, he will be entitled to all outstanding share awards
made under the Company’s long-term incentive schemes. For
unvested awards made under the Performance Share Plan, the
number of shares he will receive will be determined by
achievement against the measures and targets at the end of
the respective performance period.
Jeremy Darroch
Jeremy Darroch has served as a non-executive director
and Chairman of the Audit Committee since February 2006.
He has decided to step down and retires from the Board on
19 June 2013.
What are the executive directors’ external board
appointments?
The Company recognises that executive directors may be
invited to become non-executive directors of other companies
and that these appointments can broaden their knowledge and
experience to the benefit of the Company. The individual
director retains any fee. External board appointments for the
2013/14 financial year are shown below:
Name
Marc Bolland
Steven Sharp
Company
Fee £000
Manpower Inc
Adnams plc
1241
28
1 Marc Bolland’s fee is paid in cash and stock units and in US dollars. For the purposes of
this table the values were converted to sterling using the £:$ spot rate as at 30 March 2013
for stock units and the average rolling £:$ rate during the year for cash payments.
Directors’ interests
What are the directors’ interests in the Company?
The beneficial interests of the directors and connected persons
in the shares of the Company are shown in the table below.
Options granted under the Company share schemes are
detailed in part 2 of this report. Further information regarding
employee share option schemes is given in note 13 to the
financial statements on page 95 of the Annual Report.
There have been no changes in the directors’ interests in
shares or options granted by the Company and its subsidiaries
between the end of the financial year and 22 May 2013. No
director had an interest in any of the Company’s subsidiaries at
the beginning or end of the year.
Robert Swannell
Marc Bolland
John Dixon
Steve Rowe
Steven Sharp
Alan Stewart
Laura Wade-Gery
Miranda Curtis
Vindi Banga
Jeremy Darroch
Martha Lane Fox
Andy Halford
Steven Holliday
Jan du Plessis
Ordinary shares
as at
1 April 2012
or at date of
appointment
100,000
147,430
156,295
177,423
397,044
10,000
55,055
5,500
2,000
2,000
20,100
–
2,500
20,000
Ordinary shares
as at
30 March 2013
100,000
147,430
156,407
185,926
399,560
10,000
55,055
5,500
2,000
2,000
20,100
3,000
2,500
20,000
GovernanceMarks and Spencer Group plcRemuneration report continued
Annual report and financial statements 2013
67
What is the shareholding policy for executive directors?
All executive directors are required to hold shares equivalent in
value to a minimum percentage of their salary (200% for the
CEO and 100% for all other executive directors) within a five
year period from their date of appointment. The relevant salary
is at the date of appointment and the market value is measured
at the current date. Holdings in the shares of the Company
including the net value of all unexercised awards under the
Deferred Share Bonus Plan and Restricted Share Plan as at
30 March 2013 are shown below:
Marc Bolland
John Dixon
Steve Rowe
Steven Sharp
Alan Stewart
Laura Wade-Gery
Time from date
of appointment
2 / 11 months
3 / 7 months
– / 6 months
7 / 5 months
2 / 5 months
1 / 9 months
% of salary
Target
Actual
200
100
100
100
100
100
177
280
198
589
72
183
Dilution limits
What is the current dilution of share capital by
employee share plans?
Awards granted under the Company’s Save As You Earn
scheme and the Executive Share Option scheme are met by
the issue of new shares when the options are exercised.
All other share plans are met by market purchase. The
Company monitors the number of shares issued under these
schemes and their impact on dilution limits. The Company’s
usage of shares compared to the dilution limits set by the
Association of British Insurers (ABI) in respect of all share plans
(10% in any rolling ten year period) and executive share plans
(5% in any rolling ten year period) as at 30 March 2013 was
as follows:
All share plans
Actual
Limit
Executive share plans
Actual
Limit
5.76%
0.45%
10%
5%
Total shareholder return
Performance graph
The graph below illustrates the Company’s performance against the FTSE 100 over the past five years:
Marks & Spencer Group plc
FTSE 100 Index
Source: Thomson Reuters
140
120
100
80
60
40
20
0
29 March
2008
28 March
2009
3 April
2010
29 March
2011
2 April
2012
30 March
2013
GovernanceMarks and Spencer Group plcOverviewStrategic reviewFinancial reviewGovernanceFinancial statements and other information Part 2: audited information
Annual report and financial statements 2013
68
Directors’ emoluments
Chairman
Robert Swannell
Chief Executive Officer
Marc Bolland
Executive directors
John Dixon
Steve Rowe5
Steven Sharp
Alan Stewart
Laura Wade-Gery
Non-executive directors
Vindi Banga
Miranda Curtis
Jeremy Darroch
Martha Lane Fox
Andy Halford
Steven Holliday
Jan du Plessis
Directors retiring from the Board
during the year
Kate Bostock5
Total
Salary/fee1
£000
Cash
allowance2
£000
Benefits3
£000
Dividend
equivalents
£000
Bonus4
£000
450
975
581
263
679
570
544
70
70
85
70
18
85
100
–
297
162
74
170
143
153
–
–
–
–
–
–
–
20
40
26
21
36
33
7
–
–
–
–
–
–
–
–
193
65
11
75
15
23
–
–
–
–
–
–
–
–
414
273
110
265
246
235
–
–
–
–
–
–
–
Total
2013
£000
470
Total
2012
£000
451
1,919
1,682
1,107
479
1,225
1,007
962
70
70
85
70
18
85
100
891
–
1,065
905
1,377
41
12
85
70
–
85
73
306
4,866
97
1,096
12
195
67
449
–
1,543
482
8,149
780
7,517
1 Executive director salary increases, where applicable, were effective from 1 January 2013 as set out on page 60 and in the Contracts table on page 65. John Dixon and Steve Rowe
received salary increases on appointment to their new roles on 1 October 2012 as described on page 60.
2 The elements included in the Cash allowance column of the table include pension supplement and car allowance, as applicable to each director and are described on page 60.
3 The elements included in the Benefits column of the table include car, driver and life assurance, as applicable to each director and are described on page 60.
4 For executive directors, 50% of the total bonus earned is paid in cash as shown in the table above. The remaining 50% is deferred into shares which will be granted in June 2013. The
total bonus earned by each executive director is shown in the ‘single figure’ of remuneration table on page 64.
5 The amounts for Steve Rowe and Kate Bostock reflect their periods of service as executive directors. For Steve Rowe, his total bonus earned in 2012/13 was £441,000 of which
£220,500 was earned as an executive director. For Kate Bostock, the 2012 total reflects a £164,000 reduction to the total shown in last year’s report as no payment was made under
the 2011/12 Annual Bonus Scheme.
Directors’ pension information
a) Pension benefits
John Dixon and Steve Rowe are deferred members of the Company’s Defined Benefit Pension Scheme. Details of the pension
accrued by them during the year ended 30 March 2013 are shown below:
Age as at
30 March 2013
45
45
Accrued pension
entitlement as at
31 March 2012
£000
130
138
Accrued
pension
entitlement
as at
30 March 2013
£000
133
141
Increase in
accrued
pension during
the period1
£000
3
3
Increase in
accrued
pension during
the period net
of inflation1
£000
–
–
Transfer value of
accrued pension
as 31 March
2012
£000
1,830
1,965
Transfer value of
accrued pension
as at 30 March
2013
£000
2,099
2,251
Increase in
transfer value
during the
period1
£000
269
286
Increase in
transfer value
during the
period net of
inflation1
£000
–
–
John Dixon
Steve Rowe
1 The period is from 31 March 2012 to 30 March 2013.
The accrued pension entitlement is the deferred pension amount that the director would receive at age 60 if he left the Company
on 30 March 2013. The Listing Rules require this to be disclosed excluding inflation.
All transfer values have been calculated on the basis of actuarial advice in accordance with the current Transfer Value Regulations.
The transfer values of the accrued entitlement represent the value of the assets that the pension scheme would transfer to another
pension provider on transferring the scheme’s liability in respect of the director’s pension benefits. They do not represent sums
payable to the director and therefore cannot be added meaningfully to annual remuneration. The increase in transfer value is the
increase in the transfer value of the accrued benefits during the year.
b) Payments to former directors
Details of payments made to former directors during the year are:
Unfunded pensions
Clinton Silver
2013
£000
117
2012
£000
114
The pension entitlement for Clinton Silver is supplemented by an additional unfunded pension paid by the Company.
GovernanceMarks and Spencer Group plc
Annual report and financial statements 2013
69
Directors’ interests in long-term incentive schemes
Maximum
options
receivable at
1 April 2012
or date of
appointment
Date of
grant
Options
granted
during
the year
Options
exercised
during
the year
Maximum
options
receivable at
30 March 2013
or on date of
leaving
Options
lapsed
during
the year
Share
price
on date
of award
(p)
Share
price on
date of
exercise
(p)
Option
price
(p)
Option period
–
–
–
749,769
–
101,968
–
–
–
851,737
– 777,714
365,310
– 1,143,024
–
–
–
687,200
–
–
749,769
–
–
162,263
–
–
101,968
–
–
146,541
–
–
146,542
–
–
– 777,714 3,505,438
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
2,821 319.0
341.2
341.2
354.7
325.1
378.4
325.1
341.2
341.2
397.6
– 09/06/12 – 08/06/20
– 09/06/13 – 08/06/20
– 25/07/14 – 24/07/21
– 18/06/15 – 17/06/22
– 09/06/14 – 08/06/21
– 18/06/15 – 17/06/22
– 05/12/11 – 08/06/20
– 08/06/12 – 08/06/20
– 01/01/14 – 30/06/14
09/06/09
24/11/09
09/06/10
25/07/11
18/06/12
Deferred Share Bonus Plan 09/06/10
09/06/11
18/06/12
314,575
26,178
300,410
380,603
–
223,054
98,039
–
– 109,943 204,632
17,029
–
–
–
–
–
–
–
–
–
–
432,174
–
–
–
–
–
–
–
–
62,233
–
9,149
300,410
380,603
432,174
223,054
98,039
62,233
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
286.1 327.2
382.0
341.2
354.7
325.1
341.2
378.4
325.1
–
– 24/11/12 – 23/11/19
– 09/06/13 – 08/06/20
– 25/07/14 – 24/07/21
– 18/06/15 – 17/06/22
– 09/06/13 – 08/06/20
– 09/06/14 – 08/06/21
– 18/06/15 – 17/06/22
20/07/04
21/11/08
25,935
8,251
1,377,045
–
–
–
–
–
–
25,935 347.0
8,251 203.0
347.0
252.6
– 20/07/07 – 19/07/14
– 01/01/14 – 30/06/14
494,407 109,943 221,661 1,539,848
Executive Chairman
Marc Bolland
Performance Share Plan1
09/06/10 1,143,024
09/06/10 1,143,024
687,200
25/07/11
–
18/06/12
162,263
Deferred Share Bonus Plan 09/06/11
–
18/06/12
146,541
09/06/10
146,542
09/06/10
2,821
25/11/10
3,431,415
Restricted Share Plan2
SAYE
Total
Executive directors
John Dixon
Performance Share Plan1
Executive Share
Option Scheme
SAYE
Total
Steve Rowe
Performance Share Plan1
09/06/10
25/07/11
18/06/12
Deferred Share Bonus Plan 09/06/10
09/06/11
18/06/12
18/01/10
Restricted Share Plan3
Executive Share
Option Scheme
SAYE
Total
Steven Sharp
Performance Share Plan1
09/06/09
09/06/10
25/07/11
18/06/12
Deferred Share Bonus Plan 09/06/10
09/06/11
18/06/12
20/07/04
21/11/08
153,868
205,243
232,912
76,934
41,844
32,753
20,000
31,699
8,251
803,504
394,966
375,146
461,657
–
267,291
113,724
–
Executive Share
Option Scheme
SAYE
Total
20/07/04
24/11/04
24/11/11
302,593
104,010
3,488
2,022,875
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
20,000
–
–
20,000
–
–
–
–
–
–
–
–
–
–
153,868
205,243
232,912
76,934
41,844
32,753
–
0.0
0.0
0.0
0.0
0.0
0.0
0.0
341.2
354.7
325.1
341.2
378.4
325.1
364.4 390.4
– 09/06/13 – 08/06/20
– 25/07/14 – 24/07/21
– 18/06/15 – 17/06/22
– 09/06/13 – 08/06/20
– 09/06/14 – 08/06/21
– 18/06/15 – 17/06/22
–
31,699 347.0
8,251 203.0
347.0
252.6
– 20/07/07 – 19/07/14
– 01/01/14 – 30/06/14
783,504
138,040
375,146
461,657
519,071
267,291
113,724
62,288
0.0
0.0
0.0
0.0
0.0
0.0
0.0
– 256,926
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
– 256,926 2,347,308
302,593 347.0
104,010 336.5
3,488 258.0
–
–
–
519,071
–
–
62,288
–
–
–
581,359
286.1
341.2
354.7
325.1
341.2
378.4
325.1
347.0
336.5
322.4
– 09/06/12 – 08/06/19
– 09/06/13 – 08/06/20
– 25/07/14 – 24/07/21
– 18/06/15 – 17/06/22
– 09/06/13 – 08/06/20
– 09/06/14 – 08/06/21
– 18/06/15 – 17/06/22
– 20/07/07 – 19/07/14
– 24/11/07 – 23/11/14
– 01/01/15 – 30/06/15
GovernanceMarks and Spencer Group plcOverviewStrategic reviewFinancial reviewGovernanceFinancial statements and other information Annual report and financial statements 2013
70
Directors’ interests in long-term incentive schemes (continued)
Maximum
options
receivable at
1 April 2012
or date of
appointment
Date of
grant
Options
granted
during
the year
Options
exercised
during
the year
Maximum
options
receivable at
30 March 2013
or on date of
leaving
Options
lapsed
during
the year
Share
price
on date
of award
(p)
Share
price on
date of
exercise
(p)
Option
price
(p)
Option period
144,432
387,651
–
39,789
–
39,390
39,391
3,488
654,141
444,037
–
–
119,751
126,225
77,677
767,690
–
–
436,019
–
53,194
–
–
–
489,213
–
416,025
37,442
–
–
–
453,467
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Alan Stewart
Performance Share Plan1
24/11/10
25/07/11
18/06/12
Deferred Share Bonus Plan 09/06/11
18/06/12
24/11/10
24/11/10
24/11/11
Restricted Share Plan2
SAYE
Total
Laura Wade-Gery
Performance Share Plan1
25/07/11
18/06/12
Deferred Share Bonus Plan 18/06/12
Restricted Share Plan2
25/07/11
25/07/11
25/07/11
Total
Directors retiring
from the Board
during the year
Kate Bostock
Performance Share Plan1
09/06/09
09/06/10
25/07/11
18/06/12
Deferred Share Bonus Plan 09/06/10
09/06/11
18/06/12
349,528
337,045
415,844
–
242,672
102,439
–
– 122,160 227,368
– 337,045
–
– 415,844
–
– 467,548
467,548
–
–
–
59,757
–
–
50,495
–
50,495
–
–
–
–
242,672
42,682
–
0.0
0.0
0.0
0.0
0.0
0.0
0.0
3,488 258.0
144,432
387,651
436,019
39,789
53,194
39,390
39,391
–
–
–
–
–
–
–
–
– 1,143,354
–
444,037
–
416,025
–
37,442
–
119,751
–
126,225
–
77,677
– 1,221,157
380.8
354.7
325.1
378.4
325.1
380.8
380.8
322.4
354.7
325.1
325.1
354.7
354.7
354.7
– 24/11/13 – 23/11/20
– 25/07/14 – 24/07/21
– 18/06/15 – 17/06/22
– 09/06/14 – 08/06/21
– 18/06/15 – 17/06/22
– 24/11/11 – 23/11/20
– 23/11/12 – 23/11/20
– 01/01/15 – 30/06/15
– 25/07/14 – 24/07/21
– 18/06/15 – 17/06/22
– 18/06/15 – 17/06/22
– 25/07/12 – 24/07/21
– 25/07/13 – 24/07/21
– 25/07/14 – 24/07/21
–
286.1 356.0
–
–
341.2
–
–
354.7
–
325.1
–
– 01/10/12 – 30/09/13
341.2
– 01/10/12 – 30/09/13
378.4
–
–
325.1
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
Executive Share
Option Scheme
Total
24/11/04
249,627
1,697,155
– 249,627
–
518,043 371,787 1,558,057
– 336.5
336.5 371.6
–
285,354
1 The number of options shown under the Performance Share Plan is the maximum (100%) number that could be receivable by the executive director if the performance conditions are
fully met as outlined on page 61. The 2009 award vested as follows: for awards up to 200% of salary, vesting at 34.95%; for awards between 200% and 400% of salary, vesting at
28.97%. The 2010 award will lapse as the threshold EPS target will not be met as set out on page 63.
2 These awards were made in connection with the directors’ appointment to compensate them for incentive awards that were forfeited on cessation from their previous employer.
3 Steve Rowe was awarded these Restricted Share Plan options before he was appointed executive director.
The market price of the shares at the end of the financial year was 390.0p; the highest and lowest share prices during the financial year were 398.8p and 312.2p respectively.
This Remuneration Report has been prepared on behalf of the Board by the Remuneration Committee. The Committee adopts
the principles of good governance as set out in the UK Corporate Governance Code and complies with the Listing Rules of the
Financial Services Authority and the relevant schedules of the Companies Act 2006 and the Directors’ Remuneration Report
Regulations in Schedule 8 to The Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008.
These regulations require the Company’s auditors to report on the ‘Audited Information’ in the report and to state that this section
has been properly prepared in accordance with these regulations. For this reason, the report is divided into audited and unaudited
information, and is subject to shareholder approval at the Annual General Meeting (AGM) on 9 July 2013.
Approved by the Board
Steven Holliday, Chairman of the Remuneration Committee
London
20 May 2013
GovernanceMarks and Spencer Group plcRemuneration report continued Pensions governance
Annual report and financial statements 2013
71
The Group operates a defined benefit pension scheme (the
‘Scheme’) for employees with an appointment date prior to
1 April 2002.
skill gaps and specific committee roles. The majority of the
Trustee Board members hold the Pensions Management
Institute Award in Trusteeship.
The results of the triennial actuarial valuation of the Scheme as
at 31 March 2012 revealed a deficit of £290m. This represents a
substantial reduction in deficit from £1.3bn as at 31 March 2009.
The assets of the pension scheme, which are held under trust
separately from those of the Group, are managed by the Board
of the Pension Trust (‘Trustee Board’). The Trustee Board has
three main committees: Management and Governance,
Investment and Actuarial Valuation.
During the year the size of the Trustee Board reduced from
12 to nine members. The Trustee Board is chaired by Graham
Oakley, who commenced a five-year term in April 2011, having
been a member of the Board since 2000. The Trustee Board
includes two independent directors plus three member
representatives who are appointed through a selection process
which embeds efficient succession rotation planning. During
the year the Board has been recognised through various
external awards including those for investment strategy and
risk management.
The Trustee Board has a business plan against which progress
is measured on an ongoing basis in a similar approach to the
Group Board. The Trustee Board also maintains a risk register
and an associated action plan, a conflicts of interest policy,
plus a register and a code of ethics, all of which are reviewed
regularly.
Each Trustee Board Director has an individual training plan,
which is based on the Pension Regulator’s Trustee Knowledge
and Understanding requirements and tailored to address any
All advisers, investment managers and suppliers are appointed
through a rigorous tender process. They are monitored via
quarterly reports and periodic meetings and there is also a
rolling programme of both informal and formal adviser reviews.
The Scheme is a signatory to the UN Principles for Responsible
Investment and the Trustee has partnered with a specialist
engagement service, Hermes Equity Ownership Services
(EOS), to exercise its global equity voting rights in accordance
with a detailed Trustee policy, which addresses a range of
governance, social and environmental issues. EOS has also
enhanced the Trustee’s stewardship and governance oversight
of investee companies by engaging with companies, on a
global basis, where management is considered not to be
acting in the best long-term interests of investors. The results of
these voting and engagement activities are published quarterly
on the M&S website. The Scheme is also a signatory to the
Financial Reporting Council’s UK Stewardship Code.
During 2012 all remaining DC assets in respect of employees
joining on or after 1 April 2002 were transferred to the new
Master Trust arrangement with Legal and General.
GovernanceMarks and Spencer Group plcOverviewStrategic reviewFinancial reviewGovernanceFinancial statements and other information Other disclosures
Annual report and financial statements 2013
72
Principal activities and Business review
Marks and Spencer Group plc (the ‘Company’) is the holding
company of the Marks & Spencer Group of companies (the
‘Group’). M&S has grown from a single market stall to become
an international, multi-channel retailer. With 766 stores across
the UK and a growing e-commerce business, we sell high
quality, great value food and remain the UK market leaders in
womenswear, lingerie and menswear. We aim to provide the
best shopping experience for our customers. We now operate
in 51 territories across Europe, the Middle East and Asia and
continue to grow our international presence through a multi-
channel approach.
The Companies Act 2006 requires the Company to set out in
this report a fair review of the business of the Group during the
financial year ended 30 March 2013 including an analysis of the
position of the Group at the end of the financial year, and a
description of the principal risks and uncertainties facing the
Group (known as a ‘Business review’).
The information that fulfils the Business review requirements is
incorporated by reference and can be found in the following
sections:
– Chairman’s statement on pages 2 to 3
– Strategic review on pages 8 to 33
– Our plan in action on pages 10 to 11
– Principal risks and uncertainties on pages 45 to 48
– Financial review on pages 34 to 37
– Social, environmental and ethical matters on pages 32 to 33.
More information is given in the How We Do Business report
available on our website at marksandspencer.com/plana2013
Pages 1 to 76 inclusive (together with the sections of the
Annual Report incorporated by reference) consist of a
Directors’ report that has been drawn up and presented in
accordance with and in reliance upon applicable English
company law and the liabilities of the directors in connection
with that report shall be subject to the limitations and
restrictions provided by such law.
Other information to be disclosed in the Directors’ report
is given in this section.
Profit and dividends
The profit for the financial year, after taxation, amounts to £466.7m
(last year £573.1m). The directors have declared dividends as
follows:
Ordinary shares
Paid interim dividend of 6.2p per share
(last year 6.2p per share)
Proposed final dividend of 10.8p per share
(last year 10.8p per share)
Total ordinary dividend, 17.0p per share
(last year 17.0p per share)
£m
99.0
173.5
272.5
The final ordinary dividend will be paid on 12 July 2013 to
shareholders whose names are on the Register of Members at
the close of business on 31 May 2013.
Share capital
The Company’s issued ordinary share capital as at 30 March
2013 comprised a single class of ordinary share. Details of
movements in the issued share capital can be found in note 24
to the financial statements. Each share carries the right to one
vote at general meetings of the Company.
This year saw the first maturity of the 2009 ROI Save As You
Earn Share Option Scheme, with individuals being able to
exercise options at the price of 292p.
During the period, 8,381,090 ordinary shares in the Company
were issued as follows:
– 868,952 shares under the terms of the 2002 Executive Share
Option Scheme at prices between 270p and 352p.
– 7,369,406 shares under the terms of the United Kingdom
Employees’ Save As You Earn Share Option Scheme at prices
between 203p and 319p.
– 142,732 shares under the terms of the ROI Employees’ Save
As You Earn Share Option Scheme at the price of 292p.
Restrictions on transfer of securities
There are no specific restrictions on the transfer of securities in
the Company, which is governed by the Articles and prevailing
legislation. Nor is the Company aware of any agreements
between holders of securities that may result in restrictions on
the transfer of securities or that may result in restrictions on
voting rights.
Variation of rights
Subject to applicable statutes, rights attached to any class of
share may be varied with the written consent of the holders of
at least three-quarters in nominal value of the issued shares of
that class, or by a special resolution passed at a separate
general meeting of the shareholders.
Rights and obligations attaching to shares
Subject to the provisions of the Companies Act 2006, any
resolution passed by the Company under the Companies Act
2006 and other shareholders’ rights, shares may be issued
with such rights and restrictions as the Company may by
ordinary resolution decide, or (if there is no such resolution or
so far as it does not make specific provision) as the Board (as
defined in the Articles) may decide. Subject to the Articles, the
Companies Act 2006 and other shareholders’ rights, unissued
shares are at the disposal of the Board.
Powers for the Company issuing or buying back its own
shares
The Company was authorised by shareholders, at the 2012
AGM, to purchase in the market up to 10% of the Company’s
issued share capital, as permitted under the Company’s
Articles. No shares have been bought back under this authority
during the year ended 30 March 2013. This standard authority
is renewable annually; the directors will seek to renew this
authority at the 2013 AGM. It is the Company’s present
intention to cancel any shares it buys back, rather than hold
them in treasury.
The directors were granted authority at the 2012 AGM to allot
relevant securities up to a nominal amount of £133,890,820.
That authority will apply until the conclusion of the 2013 AGM.
At this year’s AGM shareholders will be asked to grant an
authority to allot relevant securities (i) up to a nominal amount
of £134,566,483 and (ii) comprising equity securities up to a
nominal amount of £269,132,966 (after deducting from such
limit any relevant securities allotted under (i)), in connection with
an offer of a rights issue, (the Section 551 Amount), such
Section 551 amount to apply until the conclusion of the AGM to
be held in 2014 or, if earlier, on 29 September 2014.
GovernanceMarks and Spencer Group plc Annual report and financial statements 2013
73
A special resolution will also be proposed to renew the
directors’ powers to make non pre-emptive issues for cash in
connection with rights issues and otherwise up to a nominal
amount of £20,184,972. A special resolution will also be
proposed to renew the directors’ authority to repurchase the
Company’s ordinary shares in the market. The authority will be
limited to a maximum of 161 million ordinary shares and sets
the minimum and maximum prices which will be paid.
Interests in voting rights
Information provided to the Company pursuant to the Financial
Conduct Authority’s (FCA) Disclosure and Transparency Rules
(DTRs) is published on a Regulatory Information Service and
on the Company’s website. As at 30 March 2013, the following
information has been received, in accordance with DTR5,
from holders of notifiable interests in the Company’s issued
share capital.
AXA S.A.
Brandes Investment
Partners, L.P
Capital Research &
Management
The Wellcome Trust
Ordinary shares % of capital
76,111,596
Nature of holding
4.81% Direct & indirect
74,959,501
4.73% Indirect interest
63,140,887
47,464,282
3.93% Indirect interest
3.01% Direct interest
In the period 30 March 2013 to 20 May 2013 we recorded the following disclosures in
accordance with DTR5. Capita Research and Management below 3% and Legal & General
3.05%.
Deadlines for exercising voting rights
Votes are exercisable at a general meeting of the Company in
respect of which the business being voted upon is being heard.
Votes may be exercised in person, by proxy, or in relation to
corporate members, by corporate representatives. The Articles
provide a deadline for submission of proxy forms of not less
than 48 hours before the time appointed for the holding of the
meeting or adjourned meeting. However, when calculating the
48 hour period, the directors can, and have, decided not to
take account of any part of a day that is not a working day.
Significant agreements – change of control
There are a number of agreements to which the Company is
party that take effect, alter or terminate upon a change of
control of the Company following a takeover bid. Details of the
significant agreements of this kind are as follows:
– the £400m Medium Term Notes issued by the Company on
30 November 2009, the £300m Medium Term Notes issued
by the company on 6th December 2011 and the £400m
Medium Term Notes issued by the Company on 12 December
2012 to various institutions (‘MTN’) and under the Group’s
£3bn Euro Medium Term Note (EMTN) programme contain an
option such that, upon a change of control event, combined
with a credit ratings downgrade to below sub-investment
level, any holder of an MTN may require the Company to
prepay the principal amount of that MTN;
– the $500m US Notes issued by the Company to various
institutions on 6 December 2007 under section 144a of the
US Securities Act contain an option such that, upon a change
of control event, combined with a credit ratings downgrade to
below sub-investment level, any holder of such a US Note
may require the Company to prepay the principal amount of
that US Note;
– the $300m US Notes issued by the Company to various
institutions on 6 December 2007 under section 144a of the
US Securities Act contain an option such that, upon a change
of control event, combined with a credit ratings downgrade to
below sub-investment level, any holder of such a US Note
may require the Company to prepay the principal amount of
that US Note;
– the £1.325bn Credit Agreement dated 29 September 2011
between the Company and various banks contains a
provision such that, upon a change of control event, unless
new terms are agreed within 60 days, the facility under this
agreement will be cancelled with all outstanding amounts
becoming immediately payable with interest;
– the amended and restated Relationship Agreement dated
1 February 2012 (originally dated 9 November 2004 as amended
on 1 March 2005), between HSBC and the Company and
relating to M&S Bank, contains certain provisions which address
a change of control of the Company. Upon a change of control
the existing rights and obligations of the parties in respect of
M&S Bank continue and HSBC gains certain limited additional
rights in respect of existing customers of the new controller of
the Company. Where a third party arrangement is in place for
the supply of financial services products to existing customers
of the new controller, the Company is required to procure the
termination of such arrangement as soon as reasonably
practicable (whilst not being required to do anything that would
breach any contract in place in respect of such arrangement).
Where a third party arrangement is so terminated, or does not
exist, HSBC gains certain exclusivity rights in respect of the sale
of financial services products to the existing customers of the
new controller. Where the Company undertakes a re-branding
exercise with the new controller following a change of control
(which includes using any M&S brand in respect of the new
controller’s business or vice versa), HSBC gains certain
termination rights (exercisable at its election) in respect of the
Relationship Agreement;
– the Company does not have agreements with any director or
employee that would provide compensation for loss of office
or employment resulting from a takeover except that
provisions of the Company’s share schemes and plans may
cause options and awards granted to employees under such
schemes and plans to vest on a takeover.
Board of directors
The membership of the Board and biographical details of the
directors are given on page 40 and 41 and are incorporated
into this report by reference. Details of directors’ beneficial and
non-beneficial interests in the shares of the Company are
shown on page 66. Options granted under the Save As You
Earn (SAYE) Share Option and Executive Share Option
Schemes are shown on pages 69 to 70. Further information
regarding employee share option schemes is given in note 13
to the financial statements.
Kate Bostock stepped down from the Board as Executive
Director General Merchandise on 1 October 2012. John Dixon
was appointed Executive Director, General Merchandise on
1 October 2012 having previously been Executive Director,
Food. Steve Rowe joined the Board on 1 October 2012 as
Executive Director, Food. Andy Halford joined the Board
as a non-executive director on 1 January 2013 and will be
appointed Chairman of the Audit Committee following Jeremy
Darroch stepping down from the Board in June 2013.
GovernanceMarks and Spencer Group plcOverviewStrategic reviewFinancial reviewGovernanceFinancial statements and other information Other disclosures continued
Annual report and financial statements 2013
74
Steve Sharp will step down from the Board following the Annual
General Meeting on 9 July 2013 and will continue to work in the
business as Creative Director until 28 February 2014.
Patrick Bousquet-Chavanne will take over responsibility for
marketing and will be put forward for election to the Board as
Executive Director, Marketing and Business Development at
the AGM on 9 July 2013 to take up this new role from 10 July.
The appointment and replacement of directors is governed by
the Company’s Articles, the UK Corporate Governance Code
(the ‘Code’), the Companies Act 2006 and related legislation.
The Articles may be amended by a special resolution of the
shareholders. Subject to the Articles, the Companies Act 2006
and any directions given by special resolution, the business of
the Company will be managed by the Board who may exercise
all the powers of the Company. The Company may by ordinary
resolution declare dividends not exceeding the amount
recommended by the Board. Subject to the Companies Act
2006, the Board may pay interim dividends, and also any fixed
rate dividend, whenever the financial position of the Company,
in the opinion of the Board, justifies its payment.
Appointment and retirement of directors
The directors may from time to time appoint one or more
directors. The Board may appoint any person to be a director
(so long as the total number of directors does not exceed the limit
prescribed in the Articles). Under the Articles any such director
shall hold office only until the next AGM and shall then be eligible
for election. The Articles also require that at each AGM at least
one-third of the current directors must retire as directors by
rotation. All those directors who have been in office at the time of
the two previous AGMs and who did not retire at either of them
must retire as directors by rotation. In addition, a director may at
any AGM retire from office and stand for re-election. However, in
line with the UK Corporate Governance Code 2010, all directors
will stand for annual election at the 2013 AGM.
Directors’ conflicts of interest
The Company has procedures for managing conflicts of
interest in place. Should a director become aware that they,
or their connected parties, have an interest in an existing or
proposed transaction with Marks & Spencer, they should notify
the Board in writing or at the next Board meeting. Internal
controls are in place to ensure that any related party
transactions involving directors, or their connected parties,
are conducted on an arm’s length basis. Directors have a
continuing duty to update any changes to these conflicts.
Directors’ indemnities
The Company maintains directors’ and officers’ liability
insurance which gives appropriate cover for any legal action
brought against its directors. The Company has also granted
indemnities to each of its directors and the Group Secretary to
the extent permitted by law. Qualifying third party indemnity
provisions (as defined by section 234 of the Companies Act
2006) were in force during the year ended 30 March 2013 and
remain in force, in relation to certain losses and liabilities which
the directors (or Group Secretary) may incur to third parties in
the course of acting as directors or Group Secretary or
employees of the Company or of any associated company.
Employee involvement
We remain committed to employee involvement throughout the
business. Employees are kept well informed of the performance
and strategy of the Group through personal briefings, regular
meetings, personal letters home, email and broadcasts by the
Chief Executive and members of the Board at key points in the
year to all head office employees and store management. In
addition many of our store colleagues can join the briefings by
telephone to hear directly from the business. These types of
communication are supplemented by our employee publications
including ‘Your M&S’ magazine, Plan A updates and DVD
presentations. More than 3,500 employees elected onto
Business Involvement Groups (‘BIGs’) across every store and
head office location to represent their colleagues in two-way
communication and consultation with the Company. They have
continued to play a key role in a wide variety of business
changes, in what has been a very busy year.
The eighteenth meeting of the European Works Council (‘EWC’)
(established in 1995) will take place in September 2013. This
Council provides an additional forum for informing, consulting
and involving employee representatives from the countries in
the European Community. The EWC includes members from
our partly owned company in the Czech Republic, as well as
representatives from Greece, Bulgaria, France, Slovenia,
Romania, the Republic of Ireland and the UK. The EWC will
have the opportunity to be addressed by the Chief Executive
and other senior members of the Company on issues that
affect the European business. This will include the Directors
of International and Multi-channel and the Director of Plan A,
which all have an impact across the European Community.
Directors and senior management regularly attend the National
Business Involvement Group (BIG) meetings. They visit stores and
discuss with employees matters of current interest and concern
to both employees and the business through meetings with local
BIG representatives, specific listening groups and informal
discussions. The business has continued to engage with
employees and drive involvement through a scheme called
The BIG Idea. On a quarterly basis the business poses a question
to gather ideas and initiatives on a number of areas including how
we can better serve our customers. Several thousand ideas are put
forward each time and the winning employee receives an award
and the chance to see how this is implemented by the Company.
Share schemes are a long-established and successful part
of our total reward package, encouraging and supporting
employee share ownership. In particular, around 25,000
employees currently participate in Sharesave, the Company’s
all employee Save As you Earn Scheme. Full details of all
schemes are given on pages 95 to 97.
We have a well established interactive wellbeing website,
called planahealth.com, a completely bespoke website and
service designed exclusively for M&S employees which was
updated and re-launched in October 2012. It gives any
employee the opportunity to access a wealth of information,
help and support. We cover all areas of wellbeing, from healthy
eating and exercise to help in overcoming issues such as
stress, financial challenges, achieving a positive work-life
balance and problems with sleeping. New this year is access
to free physiotherapy, an enhanced counselling service and
an improved wellbeing personal coach service.
The response has been excellent with 13,000 employees
making personal pledges to improve a specific health or
wellbeing issue. Employees are able to interact with one
another, post information about clubs and groups in their
area and can gain access to information about corporate
projects which link to their personal health pledges.
GovernanceMarks and Spencer Group plc Annual report and financial statements 2013
75
We maintain contact with retired staff through communications
from the Company and the Pension Trust. Member-nominated
trustees have been elected to the Pension Trust Board,
including employees and pensioners. We continue to produce
a regular Pensions Update newsletter for members of our final
salary pension scheme and the M&S Retirement Plan.
Equal opportunities
The Group is committed to an active equal opportunities
policy from recruitment and selection, through training and
development, performance reviews and promotion to
retirement. It is our policy to promote an environment free from
discrimination, harassment and victimisation, where everyone
will receive equal treatment regardless of gender, colour, ethnic
or national origin, disability, age, marital status, sexual
orientation or religion. All decisions relating to employment
practices will be objective, free from bias and based solely
upon work criteria and individual merit. The Company is
responsive to the needs of its employees, customers and the
community at large. We are an organisation which uses
everyone’s talents and abilities and where diversity is valued.
We were one of the first major companies to remove the default
retirement age in 2001 and have continued to see an increase
in employees wanting to work past the state retirement age.
Our oldest employee is 86 years old and joined the business at
age 80. The Company once again featured in The Times Top
50 places for Women to work in April 2013 and considers this
to highlight how equal opportunities are available for all.
Employees with disabilities
It is our policy that people with disabilities should have full and
fair consideration for all vacancies. During the year, we
continued to demonstrate our commitment to interviewing
those people with disabilities who fulfil the minimum criteria,
and endeavouring to retain employees in the workforce if they
become disabled during employment. We will actively retrain
and adjust their environment where possible to allow them to
maximise their potential. We continue to work with external
organisations to provide workplace opportunities through our
innovative Marks & Start scheme and by working closely with
JobCentrePlus. This year we have focused on introducing this
scheme into our new distribution centre in Castle Donington,
where we are working with Remploy to support people with
disabilities and health conditions into work.
Essential contracts or arrangements
The Company is required to disclose any contractual or other
arrangements which it considers are essential to its business.
We have a wide range of suppliers for the production and
distribution of products to our customers. Whilst the loss of or
disruption to certain of these arrangements could temporarily
affect the operations of the Group, none are considered to be
essential, with the exception of certain warehouse operators
and the provider of the Company’s e-commerce platform.
Groceries Supply Code of Practice
The Groceries (Supply Chain Practices) Market Investigation
Order 2009 (“Order”) and The Groceries Supply Code of
Practice (“GSCOP”) impose obligations on M&S relating to
relationships with its suppliers of groceries. M&S operates
systems and controls to ensure compliance with the Order and
GSCOP including the following:
– The terms and conditions which govern the trading
relationship between M&S and those of its suppliers that
supply groceries to M&S incorporate GSCOP.
– New suppliers are issued with information as required by
the Order.
– M&S has a Code Compliance Officer as required under the
Order, supported by our in-house legal department.
– Employee training on GSCOP is provided, including annual
refresher programmes and new starter training.
Under the Order and GSCOP, M&S is required to submit an
annual report detailing its compliance with GSCOP to the Audit
Committee for approval and to the Office of Fair Trading. M&S
submitted its report to the Audit Committee on 10 May 2013
covering the period from 1 April 2012 to 30 March 2013. In
accordance with the Order, a summary of that compliance
report is set out below:
M&S believes that it has complied in full with GSCOP and the
Order during the relevant period. Only two suppliers alleged
breaches of the Order/GSCOP. One of the allegations led to a
dispute, which is detailed below, and the other was withdrawn
by the supplier and the issue resolved to the satisfaction of
both parties.
One formal dispute has arisen under the Order/GSCOP
between M&S and a grocery supplier in the reporting period.
M&S completely denies any breach and arbitration proceedings
have not yet been initiated by the supplier.
Creditor payment policy
For all trade creditors, it is the Group’s policy to:
– agree the terms of payment at the start of business with that
supplier;
– ensure that suppliers are aware of the terms of payment; and
– pay in accordance with its contractual and other legal
obligations.
The main trading company, Marks and Spencer plc, has a
policy concerning the payment of trade creditors as follows:
– general merchandise payments are received between 25 and
60 days after the stock was invoiced
– food payments are received between 19 and 54 days after the
stock was invoiced; and
– distribution suppliers are paid monthly, for costs incurred in
that month, based on estimates, and payments are adjusted
quarterly to reflect any variations to estimate.
Trade creditor days for Marks and Spencer plc for the year
ended 30 March 2013 were 24 days, or 16 working days (last
year 26 days, or 17 working days), based on the ratio of
Company trade creditors at the end of the year to the amounts
invoiced during the year by trade creditors.
Market value of properties
The Directors believe that the open market value of the
properties of the Group exceeds their net book value.
Charitable donations
In line with our Plan A commitments, during the year, the Group
made charitable donations to support the community of £11m
(last year £11.4m), excluding management costs and
memberships. These principally consisted of cash donations of
£6.2m (last year £6.9m) which included UNICEF, WWF, MCS,
Breakthrough Breast Cancer, Macmillan Cancer Support,
GovernanceMarks and Spencer Group plcOverviewStrategic reviewFinancial reviewGovernanceFinancial statements and other information Other disclosures continued
Annual report and financial statements 2013
76
Royal British Legion, our Marks & Start programme and local
community donations. We also donated £1.2m (last year
£1.3m) of employee time, principally from fundraising,
volunteering, Marks & Start and school work experience, and
stock donations of £3.6m (last year £3.2m) to a variety of
charities, including Shelter and The Newlife Foundation.
– state whether applicable IFRSs as adopted by the EU have
been followed, subject to any material departures disclosed
and explained in the financial statements; and
– prepare the financial statements on the going concern basis
unless it is inappropriate to presume that the Company will
continue in business.
We also had another successful year supporting a number of
our charity partners in raising funds of £8.2m (last year £8.5m).
This principally consisted of funds raised from customer clothing
donations to Oxfam through ‘Shwopping’ our clothes recycling
initiative, funds raised by our Marks & Start charities as a result
of M&S support and other employee and customer donations.
Political donations
No political donations were made during the year ended 30 March
2013. Marks & Spencer has a policy of not making donations to
political organisations or independent election candidates or
incurring political expenditure anywhere in the world as defined in
the Political Parties, Elections and Referendums Act 2000.
Going concern
In adopting the going concern basis for preparing the financial
statements, the directors have considered the business
activities as set out on pages 1 to 37 as well as the Group’s
principal risks and uncertainties as set out on pages 45 to 48.
Based on the Group’s cash flow forecasts and projections, the
Board is satisfied that the Group will be able to operate within
the level of its facilities for the foreseeable future. For this
reason the Group continues to adopt the going concern basis
in preparing its financial statements.
Auditors
Resolutions to reappoint PricewaterhouseCoopers LLP as
auditors of the Company and to authorise the Audit Committee to
determine their remuneration will be proposed at the 2013 AGM.
Annual General Meeting
The AGM of Marks and Spencer Group plc will be held at
Wembley Stadium, London on 9 July 2013 at 11am. The Notice
of Meeting is given, together with explanatory notes, in the
booklet which accompanies this report.
Directors’ responsibilities
The directors are responsible for preparing the Annual Report,
the Remuneration report and the financial statements in
accordance with applicable law and regulations. Company law
requires the directors to prepare financial statements for each
financial year. Under that law the directors have prepared the
Group and Company financial statements in accordance with
International Financial Reporting Standards (IFRSs) as adopted
by the EU. Under company law the directors must not approve
the financial statements unless they are satisfied that they give
a true and fair view of the state of affairs of the Group and the
Company and of the profit or loss of the Company and Group
for that period. In preparing these financial statements, the
directors are required to:
– select suitable accounting policies and then apply them
consistently;
– make judgements and accounting estimates that are
reasonable and prudent;
The directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Company’s
transactions and disclose with reasonable accuracy at any time
the financial position of the Company and the Group and to
enable them to ensure that the financial statements and the
Remuneration report comply with the Companies Act 2006
and, as regards the Group financial statements, Article 4 of the
IAS Regulation. They are also responsible for safeguarding the
assets of the Company and the Group and hence for taking
reasonable steps for the prevention and detection of fraud and
other irregularities. The directors are responsible for the
maintenance and integrity of the Company’s website.
Legislation in the UK governing the preparation and
dissemination of financial statements may differ from legislation
in other jurisdictions. Each of the directors, whose names and
functions are listed on pages 40 and 41 of the Annual Report,
confirm that, to the best of their knowledge:
– the Group financial statements, which have been prepared in
accordance with IFRSs as adopted by the EU, give a true and
fair view of the assets, liabilities, financial position and profit of
the Group; and
– the Business review contained in this report includes a fair
review of the development and performance of the business
and the position of the Group, together with a description of
the principal risks and uncertainties that it faces.
Disclosure of information to auditor
Each director confirms that, so far as he/she is aware, there is
no relevant audit information of which the Company’s auditors
are unaware and that each director has taken all the steps
that he/she ought to have taken as a director to make himself/
herself aware of any relevant audit information and to establish
that the Company’s auditors are aware of that information.
By order of the Board
Amanda Mellor, Group Secretary
London
20 May 2013
GovernanceMarks and Spencer Group plc Independent auditors’ report
to the members of Marks and Spencer Group Plc
Annual report and financial statements 2013
77
– the financial statements have been prepared in accordance
with the requirements of the Companies Act 2006 and, as
regards the Group financial statements, Article 4 of the lAS
Regulation.
Opinion on other matters prescribed by the Companies
Act 2006
In our opinion:
– the part of the Remuneration report to be audited has been
properly prepared in accordance with the Companies Act
2006; and
– the information given in the Directors’ Report for the financial
year for which the financial statements are prepared is
consistent with the financial statements.
Matters on which we are required to report by exception
We have nothing to report in respect of the following:
Under the Companies Act 2006 we are required to report to
you if, in our opinion:
– adequate accounting records have not been kept by the
parent company, or returns adequate for our audit have not
been received from branches not visited by us; or
– the parent company financial statements and the part of the
Remuneration report to be audited are not in agreement with
the accounting records and returns; or
– certain disclosures of directors’ remuneration specified by law
are not made; or
– we have not received all the information and explanations we
require for our audit.
Under the Listing Rules we are required to review:
– the directors’ statement, set out on page 76, in relation to
going concern;
– the parts of the Corporate Governance Statement relating to
the Company’s compliance with the nine provisions of the UK
Corporate Governance Code specified for our review; and
– certain elements of the report to shareholders by the Board
on directors’ remuneration.
Stuart Watson (Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
London
20 May 2013
We have audited the financial statements of Marks and
Spencer Group plc for the 52 weeks ended 30 March 2013
which comprise the Consolidated income statement, the
Consolidated statement of comprehensive income, the
Consolidated and Company statements of financial position,
the Consolidated statement of changes in equity and Company
statement of changes in shareholders’ equity, the Consolidated
cash flow information and Company statement of cash flows
and the related notes. The financial reporting framework that
has been applied in their preparation is applicable law and
International Financial Reporting Standards (IFRSs) as adopted
by the European Union and, as regards the parent company
financial statements, as applied in accordance with the
provisions of the Companies Act 2006.
Respective responsibilities of directors and auditors
As explained more fully in the Directors’ Responsibilities
Statement set out on page 76, the directors are responsible for
the preparation of the financial statements and for being
satisfied that they give a true and fair view. Our responsibility is
to audit and express an opinion on the financial statements in
accordance with applicable law and International Standards on
Auditing (UK and Ireland). Those standards require us to
comply with the Auditing Practices Board’s Ethical Standards
for Auditors.
This report, including the opinions, has been prepared for and
only for the Company’s members as a body in accordance with
Chapter 3 of Part 16 of the Companies Act 2006 and for no other
purpose. We do not, in giving these opinions, accept or assume
responsibility for any other purpose or to any other person to
whom this report is shown or into whose hands it may come save
where expressly agreed by our prior consent in writing.
Scope of the audit of the financial statements
An audit involves obtaining evidence about the amounts and
disclosures in the financial statements sufficient to give
reasonable assurance that the financial statements are free
from material misstatement, whether caused by fraud or error.
This includes an assessment of: whether the accounting
policies are appropriate to the Group’s and the parent
company’s circumstances and have been consistently applied
and adequately disclosed; the reasonableness of significant
accounting estimates made by the directors; and the overall
presentation of the financial statements. In addition, we read all
the financial and non-financial information in the Annual report
and financial statements 2013 to identify material
inconsistencies with the audited financial statements. If we
become aware of any apparent material misstatements or
inconsistencies we consider the implications for our report.
Opinion on financial statements
In our opinion:
– the financial statements give a true and fair view of the state
of the Group’s and of the parent company’s affairs as at 30
March 2013 and of the Group’s profit and Group’s and parent
company’s cash flows for the 52 weeks then ended;
– the Group financial statements have been properly prepared
in accordance with IFRSs as adopted by the European Union;
– the parent company financial statements have been properly
prepared in accordance with IFRSs as adopted by the
European Union and as applied in accordance with the
provisions of the Companies Act 2006; and
GovernanceMarks and Spencer Group plcOverviewStrategic reviewFinancial reviewGovernanceFinancial statements and other information Financial statements
Consolidated income statement
Annual report and financial statements 2013
78
Revenue
Operating profit
Finance income
Finance costs
Profit before tax
Income tax expense
Profit for the year
Attributable to:
Equity shareholders of the Company
Non-controlling interests
Basic earnings per share
Diluted earnings per share
Non-GAAP measures: Underlying profit before tax
Profit before tax
Adjusted for:
Strategic programme costs
Restructuring costs
IAS 36 Impairment of assets
IAS 39 Fair value movement of put option over non-controlling interest in Czech business
IAS 39 Fair value movement of embedded derivative
Fair value movement on buy back of the Puttable Callable Reset medium-term notes
Reduction in M&S Bank income for the impact of the financial product mis-selling provision
Underlying profit before tax
Underlying basic earnings per share
Underlying diluted earnings per share
Consolidated statement of comprehensive income
Profit for the year
Other comprehensive income:
Foreign currency translation differences
Actuarial gains/(losses) on retirement benefit schemes
Tax on retirement benefit schemes
Cash flow and net investment hedges
– fair value movements in other comprehensive income
– reclassified and reported in net profit
– amount recognised in inventories
Tax on cash flow hedges and net investment hedges
Other comprehensive income/(loss) for the year, net of tax
Total comprehensive income for the year
Attributable to:
Equity shareholders of the Company
Non-controlling interests
52 weeks ended
30 March 2013
£m
10,026.8
52 weeks ended
31 March 2012
£m
9,934.3
756.0
746.5
Notes
2, 3
2, 3
6
6
4
7
8
8
5
5
5
5
5
5
5
1
8
8
26.5
(218.2)
564.3
(106.3)
458.0
466.7
(8.7)
458.0
29.2p
29.0p
48.3
(136.8)
658.0
(168.4)
489.6
513.1
(23.5)
489.6
32.5p
32.2p
564.3
658.0
6.6
9.3
–
–
(5.8)
75.3
15.5
665.2
32.7p
32.5p
18.4
–
44.9
(15.6)
0.2
–
–
705.9
34.9p
34.6p
Notes
52 weeks ended
30 March 2013
£m
458.0
52 weeks ended
31 March 2012
£m
489.6
11
7.9
90.7
(19.9)
33.6
(26.0)
(13.6)
(0.4)
72.3
530.3
539.0
(8.7)
530.3
(15.1)
(189.9)
50.4
53.0
(23.0)
13.7
(7.3)
(118.2)
371.4
394.9
(23.5)
371.4
Financial statementsMarks and Spencer Group plc Consolidated statement of financial position
Annual report and financial statements 2013
79
Assets
Non-current assets
Intangible assets
Property, plant and equipment
Investment property
Investment in joint ventures
Other financial assets
Retirement benefit asset
Trade and other receivables
Derivative financial instruments
Current assets
Inventories
Other financial assets
Trade and other receivables
Derivative financial instruments
Current tax assets
Cash and cash equivalents
Total assets
Liabilities
Current liabilities
Trade and other payables
Partnership liability to the Marks & Spencer UK Pension Scheme
Borrowings and other financial liabilities
Derivative financial instruments
Provisions
Current tax liabilities
Non-current liabilities
Retirement benefit deficit
Trade and other payables
Partnership liability to the Marks & Spencer UK Pension Scheme
Borrowings and other financial liabilities
Derivative financial instruments
Provisions
Deferred tax liabilities
Total liabilities
Net assets
Equity
Issued share capital
Share premium account
Capital redemption reserve
Hedging reserve
Other reserve
Retained earnings
Total shareholders’ equity
Non-controlling interests in equity
Total equity
As at
30 March 2013
£m
As at
31 March 2012
£m
Notes
14
15
16
11
17
21
16
17
21
18
19
12
20
21
22
11
19
12
20
21
22
23
24
695.0
5,033.7
15.8
15.5
3.0
206.1
265.4
65.3
6,299.8
767.3
16.9
245.0
42.5
3.1
193.1
1,267.9
7,567.7
1,503.8
71.9
558.7
13.7
19.2
71.0
2,238.3
13.1
292.1
550.7
1,727.3
13.1
16.0
230.7
2,843.0
5,081.3
2,486.4
403.5
315.1
2,202.6
9.2
(6,542.2)
6,117.2
2,505.4
(19.0)
2,486.4
584.3
4,789.9
15.9
14.4
3.0
91.3
270.2
44.2
5,813.2
681.9
260.5
253.0
67.0
1.6
196.1
1,460.1
7,273.3
1,449.1
71.9
327.7
60.5
8.4
87.8
2,005.4
13.3
280.8
–
1,948.1
27.2
24.0
195.7
2,489.1
4,494.5
2,778.8
401.4
294.3
2,202.6
14.8
(6,114.3)
5,991.4
2,790.2
(11.4)
2,778.8
The financial statements were approved by the Board and authorised for issue on 20 May 2013. The financial statements also
comprise the notes on pages 82 to 109.
Marc Bolland Chief Executive Officer
Alan Stewart Chief Finance Officer
Financial statementsMarks and Spencer Group plcOverviewStrategic reviewFinancial reviewGovernanceFinancial statements and other information Consolidated statement of changes in equity
Annual report and financial statements 2013
80
At 3 April 2011
Profit/(loss) for the year
Other comprehensive income:
Foreign currency translation
Actuarial losses on retirement benefit schemes
Tax on retirement benefit schemes
Cash flow and net investment hedges
– fair value movements in other comprehensive
income
– reclassified and reported in net profit3
– amount recognised in inventories
Tax on cash flow hedges and net investment
hedges
Other comprehensive income
Total comprehensive income/(expenses)
Transactions with owners:
Dividends
Transactions with non-controlling shareholders
Recognition of financial liability
Shares issued on exercise of employee
share options
Purchase of own shares held by
employee trusts
Credit for share-based payments
Deferred tax on share schemes
At 31 March 2012
At 1 April 2012
Profit/(loss) for the year
Other comprehensive income:
Foreign currency translation
Actuarial gain on retirement benefit schemes
Tax on retirement benefit schemes
Cash flow and net investment hedges
– fair value movements in other comprehensive
income
– reclassified and reported in net profit3
– amount recognised in inventories
Tax on cash flow hedges and net investment
hedges
Other comprehensive income
Total comprehensive income/(expenses)
Transactions with owners:
Dividends
Transactions with non-controlling shareholders
Recognition of financial liability
Shares issued on exercise of employee
share options
Credit for share-based payments
Deferred tax on share schemes
At 30 March 2013
Ordinary
share
capital
£m
396.2
–
Share
premium
account
£m
255.2
–
Capital
redemption
reserve
£m
2,202.6
–
Hedging
reserve
£m
(11.3)
–
Other
reserve1
£m
(6,042.4)
–
Retained
earnings2
£m
Total
£m
5,873.2 2,673.5
513.1
513.1
Non-
controlling
Total
interest
£m
£m
3.9 2,677.4
489.6
(23.5)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
5.2
39.1
–
–
–
–
–
–
–
–
–
–
–
–
–
(1.1)
–
–
43.8
(23.0)
13.7
(7.3)
26.1
26.1
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(71.9)
(14.0)
(189.9)
50.4
(15.1)
(189.9)
50.4
9.2
–
–
–
(144.3)
368.8
(267.8)
(6.4)
–
53.0
(23.0)
13.7
(7.3)
(118.2)
394.9
(267.8)
(6.4)
(71.9)
–
–
–
–
–
–
–
–
(23.5)
–
8.2
–
(15.1)
(189.9)
50.4
53.0
(23.0)
13.7
(7.3)
(118.2)
371.4
(267.8)
1.8
(71.9)
–
–
44.3
–
44.3
–
–
–
–
–
–
–
–
–
401.4
294.3 2,202.6
401.4 294.3 2,202.6
–
–
–
(13.2)
32.5
4.3
–
–
–
(6,114.3)
(13.2)
–
32.5
–
4.3
–
14.8
5,991.4 2,790.2
14.8 (6,114.3) 5,991.4 2,790.2
466.7
466.7
–
–
–
–
–
(13.2)
32.5
4.3
(11.4) 2,778.8
(11.4) 2,778.8
458.0
(8.7)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(1.5)
–
–
35.9
(26.0)
(13.6)
(0.4)
(5.6)
(5.6)
–
–
–
–
–
–
–
–
–
9.4
90.7
(19.9)
7.9
90.7
(19.9)
(2.3)
–
–
–
77.9
544.6
33.6
(26.0)
(13.6)
(0.4)
72.3
539.0
–
–
–
–
–
–
7.9
90.7
(19.9)
33.6
(26.0)
(13.6)
–
–
(8.7)
(0.4)
72.3
530.3
–
–
–
–
–
(427.9)
(271.3)
–
(178.1)
(271.3)
–
(606.0)
–
1.1
–
(271.3)
1.1
(606.0)
2.1
–
–
403.5
20.8
–
–
–
–
–
315.1 2,202.6
–
–
–
22.9
28.0
2.6
9.2 (6,542.2) 6,117.2 2,505.4
–
28.0
2.6
–
–
–
–
–
–
22.9
28.0
2.6
(19.0) 2,486.4
1. The ‘Other reserve’ was originally created as part of the capital restructuring that took place in 2002. It represents the difference between the nominal value of the shares issued prior to the
capital reduction by the Company (being the carrying value of the investment in Marks and Spencer plc) and the share capital, share premium and capital redemption reserve of Marks and
Spencer plc at the date of the transaction. Last year the reserve also included discretionary distributions to the Marks & Spencer UK Pension Scheme, which following the Group’s payment of
an interim dividend in relation to 2011/12 and the resultant recognition of the annual distribution of £71.9m as a financial liability was £427.9m. On 21 May 2012 the Group changed the terms
of the Marks and Spencer Scottish Limited Partnership and the total equity instrument of £427.9m was derecognised and the fair value of the remaining distributions of £606.0m was
recognised as a financial liability (see note 12).
2. The ‘Retained earnings reserve’ includes a cumulative £14.5m gain (last year £5.1m gain) in the currency reserve.
3. Amounts reclassified and reported in net profit have all been recorded in cost of sales.
Financial statementsMarks and Spencer Group plc Consolidated cash flow information
Annual report and financial statements 2013
81
Cash flows from operating activities
Cash generated from operations
Income tax paid
Net cash generated from operating activities
Cash flows from investing activities
Purchase of property, plant and equipment
Purchase of intangible assets
Sale/(purchase) of current financial assets
Interest received
Net cash used in investing activities
Cash flows from financing activities
Interest paid
Cash inflow/(outflow) from borrowings
Drawdown of syndicated loan notes
Issue of medium-term notes
Redemption of medium-term notes
Decrease in obligations under finance leases
Payment of liability to the Marks & Spencer UK Pension Scheme
Equity dividends paid
Shares issued on exercise of employee share options
Purchase of own shares by employee trust
Net cash used in financing activities
Net cash outflow from activities
Effects of exchange rate changes
Opening net cash
Closing net cash
Reconciliation of net cash flow to movement in net debt
Opening net debt
Net cash outflow from activities
(Decrease)/increase in current financial assets
Decrease in debt financing
Partnership liability to the Marks & Spencer UK Pension Scheme (non-cash)
Exchange and other non-cash movements
Movement in net debt
Closing net debt
Notes
26
52 weeks ended
30 March 2013
£m
52 weeks ended
31 March 2012
£m
1,246.2
(106.0)
1,140.2
1,352.1
(149.1)
1,203.0
(642.6)
(187.1)
243.4
5.9
(580.4)
(135.2)
0.5
81.0
395.6
(606.4)
(11.0)
(71.9)
(271.3)
22.9
–
(595.8)
(36.0)
0.9
195.8
160.7
(564.3)
(156.4)
(44.8)
7.7
(757.8)
(135.9)
(41.4)
–
295.5
(307.6)
(13.0)
(71.9)
(267.8)
44.3
(13.2)
(511.0)
(65.8)
(1.9)
263.5
195.8
27
52 weeks ended
30 March 2013
£m
52 weeks ended
31 March 2012
£m
Notes
(1,857.1)
(36.0)
(243.4)
132.7
(606.0)
(4.5)
(757.2)
(2,614.3)
(1,900.9)
(65.8)
44.8
138.4
(71.9)
(1.7)
43.8
(1,857.1)
27
Financial statementsMarks and Spencer Group plcOverviewStrategic reviewFinancial reviewGovernanceFinancial statements and other information Notes to the financial statements
Annual report and financial statements 2013
82
1 Accounting policies
Basis of preparation
The financial statements have been prepared in accordance with
International Financial Reporting Standards (IFRS) and IFRS
Interpretations Committee (IFRS IC) interpretations, as adopted
by the European Union and with those parts of the Companies
Act 2006 applicable to companies reporting under IFRS.
Basis of consolidation
The Group financial statements incorporate the financial
statements of Marks and Spencer Group plc and all its
subsidiaries made up to the year end date. Where necessary,
adjustments are made to the financial statements of subsidiaries
to bring the accounting policies used in line with those used by
the Group.
In adopting the going concern basis for preparing the financial
statements, the directors have considered the business activities
as set out on pages 1 to 37 as well as the Group’s principal
risks and uncertainties as set out on pages 46 to 47. Based on
the Group’s cash flow forecasts and projections, the Board is
satisfied that the Group will be able to operate within the level of
its facilities for the foreseeable future. For this reason the Group
continues to adopt the going concern basis in preparing its
financial statements.
There are no IFRS or IFRS IC interpretations that are effective for
the first time in this financial year that have had a material impact
on the Group.
The following IFRS, IFRS IC interpretations and amendments
have been issued but are not yet effective and have not been
early adopted by the Group:
IAS 19, ‘Employee Benefits’ has been revised and was
endorsed by the EU in June 2012. It is effective for periods
beginning on or after 1 January 2013. The revised standard will
change the amounts recognised in the income statement and in
other comprehensive income. The expected return on plan
assets and the interest cost on liabilities are replaced by a new
component of the income statement charge – interest on the
net retirement benefit asset/liability calculated by applying the
discount rate to the net defined benefit asset/liability. The revised
standard has retrospective application. Had the revised
standard been applied to the 2012/13 results the underlying
profit for the year would have been £17m lower, with a
compensating credit in other comprehensive income.
IFRS 13, ‘Fair value measurement’, aims to improve consistency
and reduce complexity by providing a precise definition of fair
value and a single source of fair measurement and disclosure
requirements for use across IFRS. The requirements, which are
largely aligned between IFRS and US GAAP, do not extend the
use of fair value accounting but provide guidance on how it
should be applied where its use is already required or permitted
by other standards. IFRS 13 is not expected to have a material
impact on the Group.
There are no other IFRS or IFRS IC interpretations that are not
yet effective that would be expected to have a material impact
on the Group.
The Marks and Spencer Scottish Limited Partnership has taken
an exemption under paragraph 7 of the Partnership (Accounts)
Regulations 2008 for the requirement to prepare and deliver
financial statements in accordance with the Companies Act.
A summary of the Company’s and the Group’s accounting
policies is given below:
Accounting convention
The financial statements are drawn up on the historical cost
basis of accounting, as modified by financial assets and financial
liabilities (including derivative instruments) at fair value through
profit and loss.
Subsidiaries
Subsidiary undertakings are all entities (including special
purpose entities) over which the Group has the power to govern
the financial and operating policies generally accompanying a
shareholding of more than one half of the voting rights.
Subsidiary undertakings acquired during the year are recorded
using the acquisition method of accounting and their results are
included from the date of acquisition.
The separable net assets, including property, plant and
equipment and intangible assets, of the newly acquired
subsidiary undertakings are incorporated into the consolidated
financial statements on the basis of the fair value as at the
effective date of control.
Intercompany transactions, balances and unrealised gains on
transactions between Group companies are eliminated.
Revenue
Revenue comprises sales of goods to customers outside the
Group less an appropriate deduction for actual and expected
returns, discounts and loyalty scheme vouchers, and is stated
net of value added tax and other sales taxes. Revenue is
recognised when goods are delivered and the significant risks
and rewards of ownership have been transferred to the buyer.
Dividends
Final dividends are recorded in the financial statements in the
period in which they are approved by the Company’s
shareholders. Interim dividends are recorded in the period in
which they are approved and paid.
Pensions
Funded pension plans are in place for the Group’s UK
employees and some employees overseas.
For defined benefit pension schemes, the difference between
the fair value of the assets and the present value of the defined
benefit obligation is recognised as an asset or liability in the
statement of financial position. The defined benefit obligation is
actuarially calculated using the projected unit credit method.
The service cost of providing retirement benefits to employees
during the year, together with the cost of any benefits relating to
past service, is charged to operating profit in the year.
A credit representing the expected return on the assets of the
retirement benefit schemes during the year is included within
finance income. This is based on the market value of the assets
of the schemes at the start of the financial year.
A charge is also made within finance income representing the
expected increase in the liabilities of the retirement benefit
schemes during the year. This arises from the liabilities of the
schemes being one year closer to payment.
Actuarial gains and losses are recognised immediately in the
statement of comprehensive income.
Payments to defined contribution retirement benefit schemes
are charged as an expense as they fall due.
Financial statementsMarks and Spencer Group plc Annual report and financial statements 2013
83
1 Accounting policies continued
Intangible assets
A. Goodwill Goodwill arising on consolidation represents the
excess of the consideration transferred and the amount of any
non-controlling interest in the acquiree over the fair value of the
identifiable assets and liabilities (including intangible assets) of
the acquired entity at the date of the acquisition. Goodwill is
recognised as an asset and assessed for impairment annually or
as triggering events occur. Any impairment is recognised
immediately in the income statement.
B. Brands Acquired brand values are held on the statement of
financial position initially at cost. Definite life intangibles are
amortised on a straight-line basis over their estimated useful
lives. Indefinite life intangibles are tested for impairment annually
or as triggering events occur. Any impairment in value is
recognised immediately in the income statement.
C. Software intangibles Where computer software is not an
integral part of a related item of computer hardware, the
software is treated as an intangible asset. Capitalised software
costs include external direct costs of goods and services, as
well as internal payroll related costs for employees who are
directly associated with the project.
Capitalised software development costs are amortised on a
straight-line basis over their expected economic lives, normally
between three and ten years. Computer software under
development is held at cost less any recognised impairment loss.
Any impairment in value is charged to the income statement.
Property, plant and equipment
The Group’s policy is to state property, plant and equipment at
cost less accumulated depreciation and any recognised
impairment loss. Property is not revalued for accounting
purposes. Assets in the course of construction are held at cost
less any recognised impairment loss. Cost includes professional
fees and, for qualifying assets, borrowing costs.
Depreciation is provided to write off the cost of tangible non-
current assets (including investment properties), less estimated
residual values, by equal annual instalments as follows:
– freehold land – not depreciated;
– freehold and leasehold buildings with a remaining lease term
over 50 years – depreciated to their residual value over their
estimated remaining economic lives;
– leasehold buildings with a remaining lease term of less than
50 years – depreciated over the remaining period of the
lease; and
– fixtures, fittings and equipment – 3 to 25 years according to
the estimated life of the asset.
Residual values and useful economic lives are reviewed annually.
Depreciation is charged on all additions to, or disposals of,
depreciating assets in the year of purchase or disposal.
Any impairment in value is charged to the income statement.
Leasing
Where assets are financed by leasing agreements and the risks
and rewards are substantially transferred to the Group (finance
leases) the assets are treated as if they had been purchased
outright, and the corresponding liability to the leasing company is
included as an obligation under finance leases. Depreciation on
leased assets is charged to the income statement on the same
basis as owned assets, unless the term of the lease is shorter.
Leasing payments are treated as consisting of capital and interest
elements and the interest is charged to the income statement.
All other leases are operating leases and the costs in respect of
operating leases are charged on a straight-line basis over the
lease term. The value of any lease incentive received to take on
an operating lease (for example, a rent free period) is recognised
as deferred income and is released over the life of the lease.
Leasehold prepayments
Payments made to acquire leasehold land are included in
prepayments at cost and are amortised over the life of the lease.
Cash and cash equivalents
Cash and cash equivalents includes short-term deposits with
banks and other financial institutions, with an initial maturity of three
months or less and credit card payments received within 48 hours.
Inventories
Inventories are valued on a weighted average cost basis and
carried at the lower of cost and net realisable value. Were this
method applied in the prior year, in place of the previously
adopted retail method, there would have been no change in the
value of inventory. Cost includes all direct expenditure and other
attributable costs incurred in bringing inventories to their present
location and condition. All inventories are finished goods.
Provisions
Provisions are recognised when the Group has a present
obligation as a result of a past event, and it is probable that the
Group will be required to settle that obligation. Provisions are
measured at the best estimate of the expenditure required to
settle the obligation at the end of the reporting period, and are
discounted to present value where the effect is material.
Share-based payments
The Group issues equity-settled share-based payments to certain
employees. A fair value for the equity-settled share awards is
measured at the date of grant. The Group measures the fair value
of each award using the Black-Scholes model where appropriate.
The fair value of each award is recognised as an expense over
the vesting period on a straight-line basis, after allowing for an
estimate of the share awards that will eventually vest. The level
of vesting is reviewed annually and the charge is adjusted to
reflect actual and estimated levels of vesting.
Foreign currencies
The results of overseas subsidiaries are translated at the weighted
average of monthly exchange rates for revenue and profits. The
statements of financial position of overseas subsidiaries are
translated at year end exchange rates. The resulting exchange
differences are dealt with through reserves and reported in the
consolidated statement of comprehensive income.
Transactions denominated in foreign currencies are translated at
the exchange rate at the date of the transaction. Foreign
currency monetary assets and liabilities held at the end of the
reporting period are translated at the closing balance sheet rate.
The resulting exchange gain or loss is recognised within the
income statement.
Taxation
Tax expense comprises current and deferred tax. Tax is
recognised in the income statement, except to the extent it
relates to items recognised in other comprehensive income or
directly in equity, in which case the related tax is also recognised
in other comprehensive income or directly in equity.
Financial statementsMarks and Spencer Group plcOverviewStrategic reviewFinancial reviewGovernanceFinancial statements and other information Notes to the financial statements continued
Annual report and financial statements 2013
84
1 Accounting policies continued
Taxation continued
Deferred tax is accounted for using a temporary difference
approach, and is the tax expected to be payable or recoverable
on temporary differences between the carrying amount of
assets and liabilities in the statement of financial position and the
corresponding tax bases used in the computation of taxable
profit. Deferred tax is calculated based on the expected manner
of realisation or settlement of the carrying amount of assets and
liabilities, applying tax rates and laws enacted or substantively
enacted at the end of the reporting period.
Deferred tax liabilities are generally recognised for all taxable
temporary differences. Deferred tax liabilities are recognised for
taxable temporary differences arising on investments in
subsidiaries, associates and joint ventures, except where the
reversal of the temporary difference can be controlled by the
Group and it is probable that the difference will not reverse in the
foreseeable future.
substance of the contractual arrangements entered into. An
equity instrument is any contract that evidences a residual interest
in the assets of the Group after deducting all of its liabilities.
D. Bank borrowings Interest-bearing bank loans and overdrafts
are initially recorded at fair value, which equals the proceeds
received, net of direct issue costs. Finance charges, including
premiums payable on settlement or redemption and direct issue
costs, are accounted for using an effective interest rate method
and are added to the carrying amount of the instrument to the
extent that they are not settled in the period in which they arise.
E. Loan notes Long-term loans are initially measured at fair
value and are subsequently held at amortised cost unless the
loan is hedged by a derivative financial instrument in which case
hedge accounting treatment will apply.
F. Trade payables Trade payables are recorded initially at fair
value and subsequently measured at amortised cost. Generally
this results in their recognition at their nominal value.
Deferred tax liabilities are not recognised on temporary
differences that arise from goodwill which is not deductible for
tax purposes.
G. Equity instruments Equity instruments issued by the
Company are recorded at the consideration received, net of
direct issue costs.
Deferred tax assets are recognised to the extent it is probable
that taxable profits will be available against which the deductible
temporary differences can be utilised. The carrying amount of
deferred tax assets is reviewed at the end of each reporting
period and reduced to the extent that it is no longer probable
that sufficient taxable profits will be available to allow all or part
of the asset to be recovered.
Deferred tax assets and liabilities are not recognised in respect
of temporary differences that arise on initial recognition of assets
and liabilities acquired other than in a business combination.
Financial instruments
Financial assets and liabilities are recognised in the Group’s
statement of financial position when the Group becomes a party
to the contractual provisions of the instrument.
A. Trade receivables Trade receivables are recorded initially at
fair value and subsequently measured at amortised cost.
Generally, this results in their recognition at nominal value less
any allowance for any doubtful debts.
B. Investments and other financial assets Investments and
other financial assets are classified as either ‘available-for-sale’
or ‘fair value through profit or loss’. They are initially measured at
fair value, including transaction costs, with the exception of ‘fair
value through profit or loss’. Financial assets held at fair value
through profit or loss are initially recognised at fair value and
transaction costs are expensed.
Where securities are designated as ‘fair value through profit or
loss’, gains and losses arising from changes in fair value are
included in net profit or loss for the period. For ‘available-for-
sale’ investments, gains or losses arising from changes in fair
value are recognised in comprehensive income, until the security
is disposed of or is determined to be impaired, at which time the
cumulative gain or loss previously recognised in comprehensive
income is included in the net profit or loss for the period. Equity
investments that do not have a quoted market price in an active
market and whose fair value cannot be reliably measured by
other means are held at cost.
C. Classification of financial liabilities and equity Financial
liabilities and equity instruments are classified according to the
Derivative financial instruments and hedging
activities
The Group primarily uses interest rate swaps and forward foreign
currency contracts to manage its exposures to fluctuating interest
and foreign exchange rates. These instruments are initially
recognised at fair value on the trade date and are subsequently
remeasured at their fair value at the end of the reporting period.
The method of recognising the resulting gain or loss is dependent
on whether the derivative is designated as a hedging instrument
and the nature of the item being hedged.
The Group designates certain hedging derivatives as either:
– a hedge of a highly probable forecast transaction or change
in the cash flows of a recognised asset or liability (a cash
flow hedge);
– a hedge of the exposure to change in the fair value of a
recognised asset or liability (a fair value hedge); or
– a hedge of the exposure on the translation of net
investments in foreign entities (a net investment hedge).
Underlying the definition of fair value is the presumption that the
Group is a going concern without any intention of materially
curtailing the scale of its operations.
At inception of a hedging relationship, the hedging instrument and
the hedged item are documented and prospective effectiveness
testing is performed. During the life of the hedging relationship,
effectiveness testing is continued to ensure the instrument remains
an effective hedge of the transaction. Changes in the fair value of
derivative financial instruments that do not qualify for hedge
accounting are recognised in the income statement as they arise.
A. Cash flow hedges Changes in the fair value of derivative
financial instruments that are designated and effective as hedges
of future cash flows are recognised in comprehensive income and
any ineffective portion is recognised immediately in the income
statement. If the firm commitment or forecast transaction that is
the subject of a cash flow hedge results in the recognition of a
non-financial asset or liability, then, at the time the asset or liability
is recognised, the associated gains or losses on the derivative
that had previously been recognised in comprehensive income
are included in the initial measurement of the asset or liability.
Financial statementsMarks and Spencer Group plc Annual report and financial statements 2013
85
1 Accounting policies continued
A. Cash flow hedges continued
For hedges that do not result in the recognition of an asset or a
liability, amounts deferred in comprehensive income are recognised
in the income statement in the same period in which the hedged
items affect net profit or loss.
order to calculate the present value of these cash flows.
Where there is a non-controlling interest, goodwill is tested for
the business as a whole. This involves a notional increase to
goodwill, to reflect the non-controlling shareholders’ interest.
Actual outcomes could vary from those calculated. See note 14
for further details.
B. Fair value hedges For an effective hedge of an exposure to
changes in the fair value, the hedged item is adjusted for
changes in fair value attributable to the risk being hedged with
the corresponding entry in the income statement. Gains and
losses from remeasuring the derivative, or for non-derivatives
the foreign currency component of the carrying amount, are
recognised in the income statement.
C. Net investment hedges Changes in the fair value of
derivative or non-derivative financial instruments that are
designated and effective as hedges of net investments are
recognised in comprehensive income and any ineffective portion
is recognised immediately in the income statement.
Changes in the fair value of derivative financial instruments that
do not qualify for hedge accounting are recognised in the
income statement as they arise.
D. Discontinuance of hedge accounting Hedge accounting is
discontinued when the hedging instrument expires or is sold,
terminated or exercised, or no longer qualifies for hedge
accounting. At that time, any cumulative gain or loss on the
hedging instrument recognised in comprehensive income is
retained in equity until the forecast transaction occurs. If a
hedged transaction is no longer expected to occur, the net
cumulative gain or loss recognised in comprehensive income is
transferred to net profit or loss for the period.
The Group does not use derivatives to hedge income statement
translation exposures.
Embedded derivatives
Derivatives embedded in other financial instruments or other host
contracts are treated as separate derivatives when their risks and
characteristics are not closely related to those of the host
contracts and the host contracts are not carried at fair value, with
unrealised gains or losses reported in the income statement.
Embedded derivatives are carried in the statement of financial
position at fair value from the inception of the host contract.
Changes in fair value are recognised within the income
statement during the period in which they arise.
Critical accounting estimates and judgements
The preparation of consolidated financial statements requires
the Group to make estimates and assumptions that affect the
application of policies and reported amounts. Estimates and
judgements are continually evaluated and are based on
historical experience and other factors, including expectations of
future events that are believed to be reasonable under the
circumstances. Actual results may differ from these estimates.
The estimates and assumptions which have a significant risk of
causing a material adjustment to the carrying amount of assets
and liabilities are:
A. Impairment of goodwill and brands The Group is required
to test annually or as triggering events occur, whether the
goodwill or brands have suffered any impairment. The
recoverable amount is determined based on value in use
calculations. The use of this method requires the estimation of
future cash flows and the choice of a suitable discount rate in
B. Impairment of property, plant and equipment and
computer software Property, plant and equipment and
computer software are reviewed for impairment if events or
changes in circumstances indicate that the carrying amount may
not be recoverable. When a review for impairment is conducted,
the recoverable amount is determined based on value in use
calculations prepared on the basis of management’s assumptions
and estimates. See notes 14 and 15 for further details.
C. Depreciation of property, plant and equipment and
amortisation of computer software Depreciation and
amortisation is provided so as to write down the assets to their
residual values over their estimated useful lives as set out above.
The selection of these residual values and estimated lives
requires the exercise of management judgement. See notes 14
and 15 for further details.
D. Post-retirement benefits The determination of the pension
cost and defined benefit obligation of the Group’s defined benefit
pension schemes depends on the selection of certain assumptions
which include the discount rate, inflation rate, salary growth,
mortality and expected return on scheme assets. Differences
arising from actual experiences or future changes in assumptions
will be reflected in subsequent periods. See note 11 for further
details of assumptions and note 12 for critical judgements
associated with the Marks & Spencer UK Pension Scheme interest
in the Marks and Spencer Scottish Limited Partnership.
E. Refunds and loyalty scheme accruals Accruals for sales
returns and deferred income in relation to loyalty scheme
redemptions are estimated on the basis of historical returns and
redemptions and these are recorded so as to allocate them to
the same period as the original revenue is recorded. These
balances are reviewed regularly and updated to reflect
management’s latest best estimates. However, actual returns
and redemptions could vary from those estimates.
Non-GAAP performance measures
The directors believe that the underlying profit and earnings per
share measures provide additional useful information for
shareholders on the underlying performance of the business.
These measures are consistent with how underlying business
performance is measured internally. The underlying profit before
tax measure is not a recognised profit measure under IFRS and
may not be directly comparable with adjusted profit measures
used by other companies. The adjustments made to reported
profit before tax are to exclude the following:
– profits and losses on the disposal of properties;
– significant and one-off impairment charges that distort
underlying trading;
– costs relating to strategy changes that are not considered
normal operating costs of the underlying business;
– restructuring costs;
– fair value movement in financial instruments; and
– reduction in income received from HSBC in relation to M&S
Bank due to a non recurring provision recognised by M&S
Bank for the cost of providing redress to customers in respect
of possible mis-selling of M&S Bank financial products.
Financial statementsMarks and Spencer Group plcOverviewStrategic reviewFinancial reviewGovernanceFinancial statements and other information Annual report and financial statements 2013
86
2 Segmental information
IFRS 8 requires operating segments to be identified on the basis of internal reporting on components of the Group that are regularly
reviewed by the chief operating decision maker to allocate resources to the segments and to assess their performance.
The chief operating decision maker has been identified as the executive directors. The executive directors review the Group’s internal
reporting in order to assess performance and allocate resources across each operating segment. The operating segments are UK
and International which are reported in a manner consistent with the internal reporting to the executive directors.
The UK segment consists of the UK retail business and UK franchise operations. The International segment consists of Marks &
Spencer owned businesses in the Republic of Ireland, Europe and Asia, together with international franchise operations.
The executive directors assess the performance of the operating segments based on a measure of operating profit. This
measurement basis excludes the effects of non-underlying items from the operating segments. Central costs are all classified as UK
costs and presented within UK operating profit. The executive directors also monitor revenue within the segments. To increase
transparency, the Group has decided to include an additional voluntary disclosure analysing revenue within the reportable segments,
by subcategory.
The following is an analysis of the Group’s revenue and results by reportable segment:
General Merchandise
Food
UK revenue
Franchised
Owned
International revenue
Group revenue
UK operating profit1
International operating profit
Group operating profit
Finance income
Finance costs
Profit before tax
Management
£m
4,090.3
4,857.5
8,947.8
392.6
682.8
1,075.4
10,023.2
661.4
120.2
781.6
26.5
(142.9)
Adjustment2
£m
3.6
–
3.6
–
–
–
3.6
(25.6)
–
(25.6)
–
(75.3)
2013
Statutory
£m
4,093.9
4,857.5
8,951.4
392.6
682.8
1,075.4
10,026.8
635.8
120.2
756.0
26.5
(218.2)
Management
(Restated)3
£m
4,197.3
4,673.1
8,870.4
Adjustment
(Restated)3
£m
(2.2)
–
(2.2)
379.4
689.4
1,068.8
9,939.2
676.6
133.4
810.0
32.7
(136.8)
–
(2.7)
(2.7)
(4.9)
(18.6)
(44.9)
(63.5)
15.6
–
2012
Statutory
£m
4,195.1
4,673.1
8,868.2
379.4
686.7
1,066.1
9,934.3
658.0
88.5
746.5
48.3
(136.8)
665.2
(100.9)
564.3
705.9
(47.9)
658.0
1. UK statutory profit includes £35.6m (last year £50.7m) in respect of fees received from HSBC in relation to M&S Bank (formerly M&S Money). UK management operating profit includes fees in
relation to M&S Bank of £51.1m (last year £50.7m), which reflects a non GAAP adjustment of £15.5m as detailed in note 5.
2. Adjustments to revenue relate to an adjustment for refunds recognised in cost of sales for management accounting purposes. Management profit excludes the adjustments (income or
charges) made to reported profit before tax that are one-off in nature, significant and distort the Group’s underlying performance (see note 5).
3. Following a change in the presentation of internal reporting, management revenue and the corresponding adjustments that reconcile to statutory revenue have been re-presented. Certain
revenue deductions (such as staff discounts and loyalty points) that were previously recognised in management cost of sales are now recognised in management revenue to align with
statutory accounting. There have been no changes to the reported segments.
Other segmental information
Additions to property, plant and equipment and
intangible assets (excluding goodwill)
Depreciation and amortisation
Impairment and asset write-offs
Total assets
Non-current assets
UK
£m
International
£m
761.6
421.7
9.6
6,120.4
4,964.1
59.7
28.8
7.2
1,447.3
1,335.7
2013
Total
£m
821.3
450.5
16.8
7,567.7
6,299.8
UK
£m
International
£m
671.4
435.8
7.3
6,247.1
4,894.6
66.1
34.3
50.5
1,026.2
918.6
2012
Total
£m
737.5
470.1
57.8
7,273.3
5,813.2
Financial statementsMarks and Spencer Group plcNotes to the financial statements continued Annual report and financial statements 2013
87
3 Expense analysis
Revenue
Cost of sales
Gross profit
Selling and administrative expenses
Other operating income
Non-GAAP adjustments to underlying profit
(see note 5)
Operating profit
Underlying
£m
10,026.8
(6,230.3)
3,796.5
(3,107.0)
92.1
Adjustments
£m
–
–
–
–
–
2013
Total
£m
10,026.8
(6,230.3)
3,796.5
(3,107.0)
92.1
–
781.6
(25.6)
(25.6)
(25.6)
756.0
Underlying
£m
9,934.3
(6,179.1)
3,755.2
(3,021.9)
76.7
–
810.0
The selling and administrative expenses are further analysed below:
Employee costs (see note 10A)
Occupancy costs
Repairs, renewals and maintenance of property
Depreciation, amortisation and asset write-offs
Other costs
Selling and administrative expenses
4 Profit before taxation
The following items have been included in arriving at profit before taxation:
Net foreign exchange gains
Cost of inventories recognised as an expense
Depreciation of property, plant, and equipment
– owned assets
– under finance leases
Amortisation of intangible assets
Operating lease rentals payable
– property
– fixtures, fittings and equipment
Adjustments
£m
–
–
–
–
–
(63.5)
(63.5)
2013
£m
1,321.2
651.2
96.7
463.2
574.7
3,107.0
2013
£m
–
5,639.6
364.2
9.9
76.4
293.9
4.2
2012
Total
£m
9,934.3
(6,179.1)
3,755.2
(3,021.9)
76.7
(63.5)
746.5
2012
£m
1,253.5
637.9
101.4
479.7
549.4
3,021.9
2012
£m
0.1
6,127.0
393.5
11.3
65.3
278.7
7.8
Included in administrative expenses is the auditors’ remuneration, including expenses for audit and non-audit services, payable to
the Company’s auditors PricewaterhouseCoopers LLP and its associates as follows:
Annual audit of the Company and the consolidated financial statements
Audit of subsidiary companies
Other assurance services
Tax compliance services
Tax advisory services
Other non-audit services
2013
£m
0.8
1.0
0.2
0.3
0.3
0.5
3.1
2012
£m
0.6
1.0
0.3
0.3
0.1
0.1
2.4
Financial statementsMarks and Spencer Group plcOverviewStrategic reviewFinancial reviewGovernanceFinancial statements and other information Annual report and financial statements 2013
88
5 Non-GAAP performance measures
The adjustments made to reported profit before tax are income and charges that are one-off in nature, significant and distort the
Group’s underlying performance. These adjustments include:
– Strategic programme costs relating to the strategy announcements made in November 2010 and include the costs associated
with the Focus on the UK plans. This includes brand segmentation and business integration costs, asset write-offs and
accelerated depreciation. These costs are not considered normal operating costs of the business;
– Restructuring costs relating to the commencement of the Group’s strategy to transition to a one tier distribution network and
the closure costs of legacy logistics sites;
– IAS 36 Impairment of assets – last year, the carrying value of the Marks and Spencer Marinopolous B.V. goodwill was fully
impaired to reflect its recoverable value and the net book value of property, plant and equipment in loss making stores in the
Greece group was impaired due to the continuing decline of the Greek economy;
– IAS 39 Fair value movement on put option over non-controlling interest in Czech business – the put option value has been
revised to zero to reflect the latest three year business plan;
– IAS 39 Fair value movement of the embedded derivative in a lease contract based upon the expected future RPI versus the
lease contract in which rent increases are capped at 2.5%, with a floor of 1.5%;
– Fair value movement of the Puttable Callable Reset medium-term notes (PCR notes) realised on the repurchase of debt – in
December 2007 the Group issued £250m of 30 year puttable callable bonds which included a coupon rate reset after five
years based on a fixed underlying 25 year interest rate. On this basis the rate was reset at 9%. In light of continued low
long-term market interest rates and the successful bond issuance in December 2012, the Group bought back and cancelled
these bonds in January 2013, resulting in a one-off fair value loss. This charge is the fair value movement of the bond net of
any immaterial associated unamortised bond costs and fees. It is not considered a normal finance cost of the business; and
– The Group has an economic interest in M&S Bank, a wholly-owned subsidiary of HSBC, by way of a Relationship Agreement
that entitles the Group to a 50% share of the profits of M&S Bank after appropriate deductions. The Group does not share in
any losses of M&S Bank and is not obligated to refund any fees received from HSBC although future income may be impacted
by significant one-off deductions. In the current year, the fee income has been impacted by the deduction of the estimated
liability for providing redress to customers in respect of possible mis-selling of financial products. This estimated liability has
been recognised by M&S Bank in its audited financial statements for the year ended 31 December 2012, the Group’s share of
which reduces the overall income due to it (under the Relationship Agreement) and has been treated as an adjustment to
reported profit before tax on the basis that the directors believe that the impact of the provision recognised by M&S Bank
materially distorts the Group’s underlying performance. The Group expects there to be a further reduction in fee income of
c.£45m in the year to 29 March 2014. The effect of the significant, one-off adjustments to the Group’s income received from
HSBC in the prior year was not material. We are discussing with M&S Bank whether these charges are properly for our
account under the terms of our agreement with HSBC.
The adjustments made to reported profit before tax to arrive at underlying profit before tax are:
Strategic programme costs
Restructuring costs
IAS 36 Impairment of assets
IAS 39 Fair value movement of put option over non-controlling interest in Czech business
IAS 39 Fair value movement of embedded derivative
Fair value movement on buy back of the Puttable Callable Reset medium-term notes
Reduction in M&S Bank income for the impact of the financial product mis-selling provision
Total adjustments
Note
14, 15
6, 21
21
6, 20
2
2013
£m
(6.6)
(9.3)
–
–
5.8
(75.3)
(15.5)
(100.9)
2012
£m
(18.4)
–
(44.9)
15.6
(0.2)
–
–
(47.9)
Financial statementsMarks and Spencer Group plcNotes to the financial statements continued Annual report and financial statements 2013
89
6 Finance income/costs
Bank and other interest receivable
Pension net finance income (see note 11E)
Underlying finance income
Fair value movement of put option over non-controlling interest in Czech business (see note 5)
Finance income
Interest on bank borrowings
Interest payable on syndicated bank facility
Interest payable on medium-term notes
Interest payable on finance leases
Unwind of discount on financial instruments
Unwinding of discount on partnership liability to the Marks & Spencer UK Pension Scheme
Underlying finance costs
Fair value movement on buy back of the Puttable Callable Reset medium-term notes (see note 5)
Finance costs
Net finance costs
7 Income tax expense
A. Tax charge
Current tax
UK corporation tax on profits for the year
– current year
– adjustments in respect of prior years
UK current tax
Overseas current tax
– current year
– adjustments in respect of prior years
Total current tax
Deferred tax
– origination and reversal of temporary differences
– adjustments in respect of prior years
– changes in tax rate
Total deferred tax (see note 23)
Total income tax expense
B. Tax reconciliation
Profit before tax
Tax at the standard UK corporation tax rate of 24% (last year 26%)
Depreciation, charges and other amounts on non-qualifying fixed assets
Other income and expenses not taxable or deductible
Deferred tax rate change benefit
Overseas profits taxed at rates different to those of the UK
Benefit of current year losses not recognised
Adjustments to tax charge in respect of prior periods
Adjustments to underlying profit:
IAS 36 Impairment of assets
IAS 39 Fair value movement of put option over non-controlling interest in Czech business
Deferred tax rate change benefit
Non-underlying adjustment to tax charge in respect of prior periods
Total income tax expense
2013
£m
5.3
21.2
26.5
–
26.5
(2.1)
(6.1)
(114.3)
(2.8)
(1.0)
(16.6)
(142.9)
(75.3)
(218.2)
(191.7)
2012
£m
7.1
25.6
32.7
15.6
48.3
(5.5)
(3.0)
(126.4)
(0.7)
(1.2)
–
(136.8)
–
(136.8)
(88.5)
2013
£m
2012
£m
125.5
(24.6)
100.9
12.8
3.8
117.5
(2.7)
(2.8)
(5.7)
(11.2)
106.3
2013
£m
564.3
135.4
3.0
(8.1)
(5.4)
(4.0)
9.3
(3.2)
–
–
(0.3)
(20.4)
106.3
175.9
(9.3)
166.6
11.6
–
178.2
(10.5)
14.0
(13.3)
(9.8)
168.4
2012
£m
658.0
171.1
3.6
(11.1)
(13.1)
(8.6)
14.3
4.7
11.7
(4.0)
(0.2)
–
168.4
The effective tax rate was 18.8% (last year 25.6%) and the underlying effective tax rate was 22.7% (last year 24.5%).
The non–underlying adjustment to the tax charge in respect of prior periods relates to the reassessment of historic tax liabilities following
discussions with the tax authorities.
On 3 July 2012, the Finance Bill received its third reading in the House of Commons and so the previously announced reduced rate of
corporation tax of 23% from 1 April 2013 was substantively enacted. The Group has remeasured its UK deferred tax assets and liabilities
at the end of the reporting period at 23%, which has resulted in the recognition of a deferred tax credit of £5.7m in the income statement
(reducing the total effective tax rate by 1%), and the recognition of a deferred tax credit of £4.0m in other comprehensive income. The
Chancellor has further stated his intention to reduce the main rate of corporation tax to 21% from 1 April 2014 and to 20% from 1 April
2015. These changes have not been substantively enacted at the date of the statement of financial position. Had these changes been
enacted, then the cumulative effects would have been a credit to the income statement of £11.5m (21%) or £17.3m (20%) and a credit
to other comprehensive income of £7.9m (21%) or £11.9m (20%).
Financial statementsMarks and Spencer Group plcOverviewStrategic reviewFinancial reviewGovernanceFinancial statements and other information Annual report and financial statements 2013
90
8 Earnings per share
The calculation of earnings per ordinary share is based on earnings after tax and the weighted average number of ordinary shares in
issue during the year.
The underlying earnings per share figures have also been calculated based on earnings before items that are one-off in nature,
significant and are not considered normal operating costs of the underlying business (see note 5). These have been calculated to
allow the shareholders to gain an understanding of the underlying trading performance of the Group.
For diluted earnings per share, the weighted average number of ordinary shares in issue is adjusted to assume conversion of all
dilutive potential ordinary shares. The Group has only one class of dilutive potential ordinary shares being those share options
granted to employees where the exercise price is less than the average market price of the Company’s ordinary shares during
the year.
Details of the underlying earnings per share are set out below:
Profit attributable to equity shareholders of the Company
(Less)/add (net of tax):
Strategic programme costs
Restructuring costs
IAS 36 Impairment of assets
IAS 39 Fair value movement of put option over non controlling interest in Czech business
IAS 39 Fair value movement of embedded derivative
Fair value movement on buy back of the Puttable Callable Reset medium-term notes
Reduction in M&S Bank income for the impact of the financial product mis-selling provision
Non-underlying adjustment to tax charge in respect of prior periods
Underlying profit attributable to equity shareholders of the Company
Weighted average number of ordinary shares in issue
Potentially dilutive share options under Group’s share option schemes
Weighted average number of diluted ordinary shares
Basic earnings per share
Diluted earnings per share
Underlying basic earnings per share
Underlying diluted earnings per share
9 Dividends
Dividends on equity ordinary shares
Paid final dividend
Paid interim dividend
2013
per share
2012
per share
10.8p
6.2p
17.0p
10.8p
6.2p
17.0p
2013
£m
466.7
5.0
7.1
–
–
(4.7)
57.3
11.8
(20.4)
522.8
Million
1,599.7
10.6
1,610.3
Pence
29.2
29.0
32.7
32.5
2013
£m
172.3
99.0
271.3
2012
£m
513.1
13.8
–
39.6
(15.6)
0.2
–
–
–
551.1
Million
1,579.3
12.9
1,592.2
Pence
32.5
32.2
34.9
34.6
2012
£m
170.2
97.6
267.8
The directors have proposed a final dividend in respect of the year ended 30 March 2013 of 10.8p per share amounting to a
dividend of £173.5m. It will be paid on 12 July 2013 to shareholders on the register of members as at close of business on 31 May
2013, subject to approval of shareholders at the Annual General Meeting, to be held on 9 July 2013. In line with the requirements of
IAS 10 – ‘Events after the reporting period’, this dividend has not been recognised within these results.
A dividend reinvestment plan (DRIP) is available to shareholders who would prefer to invest their dividends in the shares of the
Company. The shares will go ex-dividend on 29 May 2013. For those shareholders electing to receive the DRIP the last date for
receipt of a new election is 21 June 2013.
The Group’s policy to grow dividends in line with underlying earnings per share is explained in the Financial Review on page 34.
Financial statementsMarks and Spencer Group plcNotes to the financial statements continued Annual report and financial statements 2013
91
10 Employees
A. Aggregate remuneration
The aggregate remuneration and associated costs of Group employees were:
Wages and salaries
Social security costs
Pension costs
Share-based payments (see note 13)
Employee welfare and other personnel costs
Capitalised staff costs
Total aggregate remuneration
Details of key management compensation are given in note 28.
B. Average monthly number of employees
UK stores
– management and supervisory categories
– other
UK head office
– management and supervisory categories
– other
Overseas
Total average monthly number of employees
2013
Total
£m
1,136.7
75.8
68.4
25.8
51.0
(36.5)
1,321.2
2012
Total
£m
1,061.3
77.7
57.7
32.5
46.0
(21.7)
1,253.5
2013
2012
5,511
65,053
3,033
922
7,215
81,734
5,784
63,003
2,782
718
6,450
78,737
If the number of hours worked was converted on the basis of a normal working week, the equivalent average number of full-time
employees would have been 57,518 (last year 54,984).
C. Directors’ emoluments
Emoluments of directors of the Company are summarised below. Further details are given in the Remuneration Report on
pages 55 to 70.
Aggregate emoluments
2013
£000
8,149
2012
£000
7,796
The emoluments include payments to directors who retired from the Board in 2012/13 of £482,000 (last year included payments
and bonus entitlements to directors who have retired from the Board of £279,000).
11 Retirement benefits
The Group provides pension arrangements for the benefit of its UK employees through the Marks & Spencer UK Pension Scheme.
This has a defined benefit section, which was closed to new entrants with effect from 1 April 2002, and a defined contribution
section which has been open to new members with effect from 1 April 2003.
The defined benefit section operates on a final salary basis and at the year end had some 13,000 active members (last year 14,000),
55,000 deferred members (last year 56,000) and 51,000 pensioners (last year 51,000). At the year end, the defined contribution
section had some 33,000 active members (last year 9,000) and some 3,000 deferred members (last year 2,000).
The Group also operates a funded defined benefit pension scheme in the Republic of Ireland. Retirement benefits also include a UK
post-retirement healthcare scheme and unfunded retirement benefits.
Within the total Group retirement benefit cost of £47.2m (last year £32.1m), £23.0m (last year £12.0m) relates to the UK defined
benefit section, £20.3m (last year £15.9m) to the UK defined contribution section and £3.9m (last year £4.2m) to other retirement
benefit schemes.
Financial statementsMarks and Spencer Group plcOverviewStrategic reviewFinancial reviewGovernanceFinancial statements and other information Annual report and financial statements 2013
92
11 Retirement benefits continued
A. Pensions and other post-retirement liabilities
Total market value of assets
Present value of scheme liabilities
Net funded pension plan asset
Unfunded retirement benefits
Post-retirement healthcare
Net retirement benefit asset
Analysed in the statement of financial position as:
Retirement benefit asset
Retirement benefit deficit
2013
£m
6,930.0
(6,723.9)
206.1
(0.8)
(12.3)
193.0
2012
£m
6,186.4
(6,095.1)
91.3
(0.8)
(12.5)
78.0
206.1
(13.1)
193.0
91.3
(13.3)
78.0
B. Financial assumptions
A full actuarial valuation of the UK Defined Benefit Pension Scheme was carried out at 31 March 2012 and showed a deficit of
£290m. A funding plan of £112m was agreed with the Trustees. The difference between the valuation and the funding plan is
expected to be met by investment returns on the existing assets of the pension scheme. The financial assumptions for the UK
scheme and the most recent actuarial valuations of the other post-retirement schemes have been updated by independent qualified
actuaries to take account of the requirements of IAS 19 – ‘Employee Benefits’ in order to assess the liabilities of the schemes and
are as follows:
Rate of increase in salaries
Rate of increase in pensions in payment for service
Discount rate
Inflation rate
Long-term healthcare cost increases
2013
%
1.0
2.4 – 3.2
4.3
3.4
7.1
2012
%
1.0
2.3 – 3.1
4.6
3.1
7.1
The inflation rate of 3.4% reflects the Retail Price Index (RPI) rate. Certain benefits have been calculated with reference to the
Consumer Price Index (CPI) as the inflationary measure and in these instances a rate of 2.4% (last year 2.1%) has been used.
The amount of the surplus varies if the main financial assumptions change, particularly the discount rate. If the discount rate
increased/decreased by 0.1% the IAS 19 surplus would increase/decrease by c.£115m (last year £110m). If the inflation rate
increased by 0.1%, the IAS 19 surplus would decrease by c.£50m and if the inflation rate decreased by 0.1%, the IAS 19 surplus
would increase by c.£75m.
C. Demographic assumptions
Apart from post retirement mortality, the demographic assumptions are in line with those adopted for the last formal actuarial
valuation of the scheme performed as at 31 March 2012. The post-retirement mortality assumptions are based on an analysis of the
pensioner mortality trends under the scheme for the period to March 2012 updated to allow for anticipated longevity improvements
over the subsequent years. The specific mortality rates used are based on the VITA tables, adjusted to allow for the experience of
scheme pensioners. The life expectancies underlying the valuation are as follows:
Current pensioners (at age 65)
Future pensioners (at age 65)
– males
– females
– males
– females
An increase of one year in the life expectancies would decrease the IAS 19 surplus by c.£230m.
2013
22.4
24.1
21.8
24.5
2012
22.1
23.4
23.2
24.3
Financial statementsMarks and Spencer Group plcNotes to the financial statements continued Annual report and financial statements 2013
93
11 Retirement benefits continued
D. Analysis of assets and expected rates of return
The major categories of assets as a percentage of total plan assets are:
Scottish Limited Partnership interest (see note 12)
UK equities
Overseas equities
Government bonds
Corporate bonds
Swaps¹
Cash and other
Total market value of assets
1. The swaps hedge interest and inflation rate exposures within the schemes’ liabilities.
The expected long-term rates of return are:
Scottish Limited Partnership interest (see note 12)
UK equities
Overseas equities
Government bonds
Corporate bonds
Swaps
Cash and other
Overall expected return
2013
£m
645.7
224.0
736.3
3,188.3
1,388.5
276.1
471.1
6,930.0
2012
£m
664.8
232.6
777.4
1,750.9
1,455.7
275.9
1,029.1
6,186.4
2013
%
9
3
11
46
20
4
7
100
2013
%
2.3
7.8
7.8
3.2
4.3
3.0
3.0
4.4
2012
%
11
4
13
28
23
4
17
100
2012
%
3.5
7.8
7.8
3.3
4.9
3.3
3.3
4.9
The overall expected return on assets assumption is derived as the weighted average of the expected returns from each of the main
asset classes. The expected return for each asset class reflects a combination of historical performance analysis, the forward-
looking views of financial markets (as suggested by the yields available) and the views of investment organisations. Consideration is
also given to the rate of return expected to be available for reinvestment.
At year end, the UK scheme indirectly held 150,955 (last year 107,216) ordinary shares in the Company through its investment in UK
Equity Index Funds.
E. Analysis of amount charged against profits
Operating cost
Current service cost
Curtailment charge
Past service cost
Finance cost
Expected return on scheme assets
Interest on scheme liabilities
Net finance income
Total
F. Scheme assets
Changes in the fair value of the scheme assets are as follows:
Fair value of scheme assets at start of year
Expected return on scheme assets¹
Employer contributions
Benefits paid
Actuarial gain
Exchange movement
Fair value of scheme assets at end of year
1. The actual return on scheme assets was £905.3m (last year return of £888.4m).
2013
£m
68.8
1.0
(1.4)
68.4
(298.0)
276.8
(21.2)
47.2
2013
£m
6,186.4
298.0
70.9
(235.0)
607.3
2.4
6,930.0
2012
£m
56.7
1.0
–
57.7
(307.4)
281.8
(25.6)
32.1
2012
£m
5,398.1
307.4
131.9
(230.4)
581.0
(1.6)
6,186.4
Future contributions to the UK scheme will be made at the rate of 23.4% of pensionable salaries up to the next full actuarial
valuation. The Group expects to contribute c.£28m to the UK defined benefit scheme for the year ended 29 March 2014.
Financial statementsMarks and Spencer Group plcOverviewStrategic reviewFinancial reviewGovernanceFinancial statements and other information Annual report and financial statements 2013
94
11 Retirement benefits continued
G. Retirement benefit obligations
Changes in the present value of retirement benefit obligations are as follows:
Present value of obligation at start of year
Current service cost
Curtailment charge
Past service cost
Interest cost
Benefits paid
Actuarial loss
Exchange movement
Present value of obligation at end of year
Analysed as:
Present value of pension scheme liabilities
Unfunded pension plans
Post-retirement healthcare
Present value of obligation at end of year
H. Cumulative actuarial gains and losses recognised in equity
Loss at start of year
Net actuarial gains/(losses) recognised in the year
Loss at end of year
I. History of experience gains and losses
Experience adjustments arising on scheme assets
Experience (losses)/gains arising on scheme liabilities
Changes in assumptions underlying the present value of scheme
liabilities
Actuarial gains/(losses) recognised in equity
Fair value of scheme assets
Present value of scheme liabilities
Pension scheme asset/(deficit)
2013
£m
607.3
(5.3)
(511.3)
90.7
2012
£m
581.0
(85.3)
(685.6)
(189.9)
2011
£m
124.1
(8.4)
170.3
286.0
6,930.0
(6,723.9)
206.1
6,186.4
(6,095.1)
91.3
5,398.1
(5,215.5)
182.6
2013
£m
6,108.4
68.8
1.0
(1.4)
276.8
(235.0)
516.6
1.8
6,737.0
6,723.9
0.8
12.3
6,737.0
2013
£m
(1,412.8)
90.7
(1,322.1)
2010
£m
867.7
36.2
(1,155.5)
(251.6)
4,948.6
(5,298.6)
(350.0)
2012
£m
5,229.6
56.7
1.0
–
281.8
(230.4)
770.9
(1.2)
6,108.4
6,095.1
0.8
12.5
6,108.4
2012
£m
(1,222.9)
(189.9)
(1,412.8)
2009
£m
(1,280.3)
81.2
272.0
(927.1)
3,977.0
(4,112.4)
(135.4)
Financial statementsMarks and Spencer Group plcNotes to the financial statements continued Annual report and financial statements 2013
95
12 Marks & Spencer UK Pension Scheme interest in the Scottish Limited Partnership
Marks and Spencer plc is a general partner and the Marks & Spencer UK Pension Scheme is a limited partner of the Marks and
Spencer Scottish Limited Partnership (the Partnership). As such, the Partnership is consolidated into the results of the Group.
The Partnership holds £1.6bn (last year £1.5bn) of properties which have been leased back to Marks and Spencer plc at market
rates. The Group retains control over these properties, including the flexibility to substitute alternative properties. The limited
partnership interest (held by the Marks & Spencer UK Pension Scheme) entitles the Pension Scheme to receive an annual
distribution of £71.9m from the profits of the Partnership earned from rental income.
In 2009 it was agreed with the Trustee that this distribution was discretionary at the instance of Marks and Spencer plc. The
discretionary right was exercisable if the Group did not pay a dividend or make any other form of return to its shareholders. On this
basis, the future value of total discretionary scheduled payments was an an equity instrument, disclosed within other reserves.
On 21 May 2012 the Group changed the terms of the Partnership to waive the Group’s limited discretionary right over the annual
distributions from the Partnership to the Pension Trustee.
The change has been reflected by the derecognition of the related equity instruments and recognition of a financial liability. The
financial liability has been initially measured at fair value of £606.0m, representing the present value of the remaining ten years of
distributions of £71.9m per annum. The difference between the value of the derecognised equity instrument of £427.9m and the fair
value of the liability has been recognised in equity in accordance with IAS 32. The change has no impact on the cash flows of
the Group.
During the year to 30 March 2013 an interest charge of £16.6m was recognised in the income statement representing the
unwinding of the discount included in this obligation.
Under IAS 19, the Partnership interest of the Pension Scheme in the Marks and Spencer Scottish Limited Partnership is included
within the UK pension scheme assets, valued at £645.7m (last year £664.8m). The market value of this non-quoted financial asset is
measured based on the expected cash flows and benchmark asset-backed credit spreads.
13 Share-based payments
The charge for share-based payments for the year was £25.8m (last year £32.5m). Of the total share-based payments charge,
£13.4m (last year £15.0m) relates to the Save As You Earn Share Option scheme. The remaining charge is spread over the other
schemes. Further details of the option and share schemes that the Group operates are provided in the Remuneration report on
pages 60 to 62.
A. Save As You Earn Share Option Scheme
Under the terms of the scheme, the Board may offer options to purchase ordinary shares in the Company once in each financial year to
those employees who enter into an HM Revenue & Customs (HMRC) approved Save As You Earn (SAYE) savings contract. HMRC
rules limit the maximum amount saved to £250 per month. The price at which options may be offered is 80% of the average mid-
market price for three consecutive dealing days preceding the offer date. The options may normally be exercised during the six month
period after the completion of the SAYE contract, either three or five years after entering the scheme.
Outstanding at beginning of the year
Granted
Exercised
Forfeited
Expired
Outstanding at end of the year
Exercisable at end of year
Number of
options
47,245,342
9,977,206
(7,369,406)
(3,575,404)
(1,004,451)
45,273,287
1,700,575
2013
Weighted
average
exercise price
259.3p
312.0p
266.0p
273.3p
418.0p
265.2p
366.9p
Number of
options
54,295,921
18,366,990
(19,345,308)
(4,327,447)
(1,744,814)
47,245,342
2,803,103
2012
Weighted
average
exercise price
249.9p
258.0p
205.6p
285.6p
481.8p
259.3p
278.9p
For SAYE share options exercised during the period, the weighted average share price at the date of exercise was 370.4p (last year
325.0p).
Financial statementsMarks and Spencer Group plcOverviewStrategic reviewFinancial reviewGovernanceFinancial statements and other information Annual report and financial statements 2013
96
13 Share-based payments continued
The fair values of the options granted during the year have been calculated using the Black-Scholes model assuming the inputs
shown below:
Grant date
Share price at grant date
Exercise price
Option life in years
Risk-free rate
Expected volatility
Expected dividend yield
Fair value of option
2013
3-year plan
Nov 12
389p
312p
3 years
0.3%
25.2%
4.4%
74p
2012
3-year plan
Nov 11
322p
258p
3 years
0.5%
31.4%
5.4%
67p
Volatility has been estimated by taking the historic volatility in the Company’s share price over a three year period.
The resulting fair value is expensed over the service period of three years on the assumption that 10% (last year 15%) of options will
lapse over the service period as employees leave the Group.
Outstanding options granted under the UK Employees’ SAYE Scheme are as follows:
Options granted
January 2007
January 2008
January 2009
January 2010
January 2011
January 2012
January 2013
2013
–
617,258
12,912,056
941,711
5,315,855
15,817,394
9,669,013
45,273,287
Number of options
2012
583,961
655,213
15,727,797
6,349,388
6,016,473
17,912,510
–
47,245,342
Weighted average remaining
contractual life (years)
2013
–
0.3
1.3
0.3
1.3
2.3
3.3
2.0
2012
0.2
1.2
1.9
1.2
2.2
3.2
–
2.3
Option price
559p
517p
203p
292p
319p
258p
312p
265p
B. Performance Share Plan*
The Performance Share Plan is the primary long-term incentive plan for approximately 100 of the most senior managers and was
first approved by shareholders in 2005. Under the plan, annual awards, based on a percentage of salary, may be offered. The extent
to which the awards vest is based on underlying basic earnings per share growth over three years. The value of any dividends
earned on the vested shares during the three years will also be paid on vesting. Further details are set out in the Remuneration
report on page 61. Awards under this scheme have been made in each year since 2005.
During the year, 9,333,652 shares (last year 7,887,169) were awarded under the Plan. The weighted average fair value of the shares
awarded was 329.7p (last year 350.8p). As at 30 March 2013, 21,492,589 shares (last year 19,651,115) were outstanding under
the scheme.
C. Deferred Share Bonus Plan*
The Deferred Share Bonus Plan was introduced in 2005/06 as part of the Annual Bonus Scheme for approximately 450 of the most
senior managers. As part of the scheme, the managers are required to defer a proportion of any bonus paid into shares which will
be held for three years. There are no further performance conditions on these shares, other than continued employment and the
value of any dividends earned during the deferred period will be paid on vesting.
During the year, 1,181,637 shares (last year 2,366,847) have been awarded under the plan in relation to the annual bonus. The fair
value of the shares awarded was 325.1p (last year 378.4p). As at 30 March 2013, 6,576,038 shares (last year 6,396,018) were
outstanding under the scheme.
D. Restricted Share Plan*
The Restricted Share Plan was established in 2000 as part of the reward strategy for retention and recruitment of senior managers
who are vital to the success of the business. The Plan operates for senior managers below executive director level. Awards under
the Plan are made as part of ongoing reviews of reward packages, and for recruitment. The shares are held in trust for a period of
between one and three years, at which point they are released to the employee subject to them still being in employment. The value
of any dividends earned during the restricted period will also be paid at the time of vesting.
During the year, 1,257,044 shares (last year 1,356,046) have been awarded under the plan. The weighted average fair value of the
shares awarded was 371.0p (last year 356.9p). As at 30 March 2013, 3,177,564 shares (last year 2,364,183) were outstanding
under the scheme.
Financial statementsMarks and Spencer Group plcNotes to the financial statements continued Annual report and financial statements 2013
97
13 Share-based payments continued
E. Republic of Ireland Save As You Earn Scheme
Sharesave, the Company’s Save As You Earn Scheme was introduced in 2009 to all employees in the Republic of Ireland for a ten
year period, after approval by shareholders at the 2009 AGM. The scheme is subject to Irish Revenue rules which limit the maximum
monthly saving to €500 per month. The Company chose in 2009 to set a monthly savings cap of €320 per month to align the
maximum savings amount allowed within the UK scheme. When the savings contract is started, options are granted to acquire the
number of shares that the total savings will buy when the contract matures, at a discounted price set at the start of the scheme. The
price at which the options may be offered is 80% of the average mid-market price for three consecutive days preceding the offer
date. Options cannot normally be exercised until a minimum of three years has elapsed.
During the year, 147,557 (last year 97,270) options were granted, at a fair value of 73.8p (last year 67.3p).
F. Marks and Spencer Employee Benefit Trust
The Marks and Spencer Employee Benefit Trust (the Trust) holds 8,046,847 shares (last year 10,621,823) with a book value of
£26.9m (last year £34.4m) and a market value of £31.4m (last year £40.2m). These shares were acquired by the Trust in the market
and are shown as a reduction in retained earnings in the consolidated statement of financial position. The Trust used funds provided
by Marks and Spencer plc to meet the Group’s obligations. Awards are granted to employees at the discretion of Marks and
Spencer plc and shares awarded to employees by the Trust in accordance with the wishes of Marks and Spencer plc under senior
executive share schemes. Dividends are waived on all of these plans.
*Nil cost options
For the purposes of calculating the number of shares awarded, the share price used is the average of the mid-market price for the five
consecutive dealing days preceding the grant date.
Financial statementsMarks and Spencer Group plcOverviewStrategic reviewFinancial reviewGovernanceFinancial statements and other information Annual report and financial statements 2013
98
14 Intangible assets
At 2 April 2011
Cost or valuation
Accumulated amortisation
Net book value
Year ended 31 March 2012
Opening net book value
Additions
Transfers
Disposals
Impairment
Amortisation charge
Exchange difference
Closing net book value
At 31 March 2012
Cost
Accumulated amortisation and impairment
Net book value
Year ended 30 March 2013
Opening net book value
Additions
Transfers
Amortisation charge
Closing net book value
At 30 March 2013
Cost
Accumulated amortisation and impairment
Net book value
Goodwill relates to the following business units:
Net book value at 31 March 2012
Exchange difference
Net book value at 30 March 2013
Computer
software
£m
Computer
software under
development
£m
Goodwill
£m
127.6
–
127.6
127.6
–
–
–
(34.4)
–
(0.6)
92.6
127.0
(34.4)
92.6
92.6
–
–
–
92.6
Brands
£m
80.0
(34.6)
45.4
45.4
32.4
–
–
–
(5.3)
–
72.5
112.4
(39.9)
72.5
72.5
–
–
(5.3)
67.2
427.1
(130.6)
296.5
296.5
72.9
37.0
(1.0)
–
(60.0)
(0.3)
345.1
535.4
(190.3)
345.1
345.1
50.2
27.8
(71.1)
352.0
127.0
(34.4)
92.6
112.4
(45.2)
67.2
613.4
(261.4)
352.0
58.2
–
58.2
58.2
52.9
(37.0)
–
–
–
–
74.1
74.1
–
74.1
74.1
136.9
(27.8)
–
183.2
183.2
–
183.2
Marks and
Spencer
Czech
Republic a.s.
£m
15.4
–
15.4
Supreme
Tradelinks
Private
Limited
£m
7.7
–
7.7
per una
£m
69.5
–
69.5
Total
£m
692.9
(165.2)
527.7
527.7
158.2
–
(1.0)
(34.4)
(65.3)
(0.9)
584.3
848.9
(264.6)
584.3
584.3
187.1
–
(76.4)
695.0
1,036.0
(341.0)
695.0
Total
£m
92.6
–
92.6
Goodwill is not amortised, but tested annually for impairment with the recoverable amount being determined from value in use
calculations. Goodwill has been allocated for impairment testing purposes to groups of cash-generating units (CGUs) which include the
combined retail and wholesale businesses. The key assumptions for the recoverable amount of all units are the long-term growth rate
and the discount rate. The long-term growth rate used is purely for the impairment testing of goodwill under IAS 36 – ‘Impairment of
Assets’ and does not reflect long-term planning assumptions used by the Group for investment proposals or for any other assessments.
The pre-tax discount rate is based on the Group’s weighted average cost of capital, taking into account the cost of capital and
borrowings, to which specific market-related premium adjustments are made: per una discount rate 10.7% (last year 10.6%), Marks and
Spencer Czech Republic a.s. 12.2% (last year 12.3%) and Supreme Tradelinks Private Limited 17.4% (last year 12.7%).
The valuations use cash flows based on detailed financial budgets prepared by management covering a three year period. Cash
flows beyond this three year period are extrapolated for Marks and Spencer Czech Republic a.s. at a growth rate of 1.5% (last year
1.5%) and Supreme Tradelinks Private Limited at a growth rate of 6% (last year 1.5%). To stress test, nil growth has been assumed
for per una. These rates do not exceed the long-term average growth rate for the Group’s retail businesses.
If a zero per cent growth rate is assumed or the discount rate is increased by a pre-tax rate of 3%, per una, Marks and Spencer
Czech Republic a.s. and Supreme Tradelinks Private Limited goodwill would not be impaired.
Last year, due to the economic environment in Greece and neighbouring countries, the Marks and Spencer Marinopoulos B.V.
goodwill was impaired in full giving rise to a charge of £34.4m.
Brands consist of the per una brand cost of £80.0m and the M&S Mode brands of £32.4m. The per una brand is a definite life
intangible asset and is amortised on a straight line basis over a period of 15 years and is only assessed for impairment where such
indicators exist. The M&S Mode brands have been attributed an indefinite life as they give the Group the future right to use the
‘M&S’ brand across Europe. This is consistent with the Group’s expansion plans in Europe and existing M&S brand recognition from
its current presence. Similar to goodwill, the M&S Mode brands are assessed for impairment annually based on their value in use.
The M&S Mode brands have been allocated for impairment testing across the European business. No brand impairment charge has
been recognised in 2012/13.
Financial statementsMarks and Spencer Group plcNotes to the financial statements continued Annual report and financial statements 2013
99
Land and
buildings
£m
2,730.0
(244.0)
2,486.0
2,486.0
17.1
25.3
(0.8)
(13.0)
(16.4)
(9.4)
2,488.8
2,759.4
(270.6)
2,488.8
2,488.8
17.3
16.1
(0.4)
(0.6)
(11.7)
2.1
2,511.6
2,817.1
(305.5)
2,511.6
Fixtures,
fittings and
equipment
£m
5,263.2
(3,287.9)
1,975.3
1,975.3
279.5
127.9
(6.8)
(10.4)
(388.4)
(6.1)
1,971.0
5,612.9
(3,641.9)
1,971.0
1,971.0
430.3
189.8
(4.6)
(16.2)
(362.4)
1.8
2,209.7
6,198.1
(3,988.4)
2,209.7
Assets in the
course of
construction
£m
200.9
–
200.9
200.9
282.7
(153.2)
–
–
–
(0.3)
330.1
330.1
–
330.1
330.1
186.6
(205.9)
–
–
–
1.6
312.4
312.4
–
312.4
Total
£m
8,194.1
(3,531.9)
4,662.2
4,662.2
579.3
–
(7.6)
(23.4)
(404.8)
(15.8)
4,789.9
8,702.4
(3,912.5)
4,789.9
4,789.9
634.2
–
(5.0)
(16.8)
(374.1)
5.5
5,033.7
9,327.6
(4,293.9)
5,033.7
15 Property, plant and equipment
At 2 April 2011
Cost
Accumulated depreciation
Net book value
Year ended 31 March 2012
Opening net book value
Additions
Transfers
Disposals
Asset write-offs
Depreciation charge
Exchange difference
Closing net book value
At 31 March 2012
Cost
Accumulated depreciation
Net book value
Year ended 30 March 2013
Opening net book value
Additions
Transfers
Disposals
Asset write-offs
Depreciation charge
Exchange difference
Closing net book value
At 30 March 2013
Cost
Accumulated depreciation
Net book value
The net book value above includes land and buildings of £41.0m (last year £41.1m) and equipment of £11.1m (last year £20.7m)
where the Group is a lessee under a finance lease.
Additions to property, plant and equipment during the year amounting to £nil (last year £nil) were financed by new finance leases.
Financial statementsMarks and Spencer Group plcOverviewStrategic reviewFinancial reviewGovernanceFinancial statements and other information Annual report and financial statements 2013 100
16 Other financial assets
Non-current
Unlisted investments
Current
Short-term investments1
Unlisted investments
2013
£m
3.0
10.7
6.2
16.9
2012
£m
3.0
254.4
6.1
260.5
1. Includes £0.3m (last year £179.4m) and £0.3m (last year £49.2m) of money market deposits held by the Marks and Spencer Scottish Limited Partnership and Marks and Spencer plc
respectively.
Non-current unlisted investments are carried as available-for-sale assets. Other financial assets are measured at fair value with
changes in their value taken to the income statement.
17 Trade and other receivables
Non-current
Other receivables
Prepayments and accrued income
Current
Trade receivables
Less: Provision for impairment of receivables
Trade receivables – net
Other receivables
Prepayments and accrued income
2013
£m
30.4
235.0
265.4
113.7
(5.4)
108.3
29.1
107.6
245.0
2012
£m
33.8
236.4
270.2
115.8
(1.2)
114.6
23.9
114.5
253.0
Trade receivables that were past due but not impaired amounted to £1.8m (last year £1.3m) and are mainly sterling denominated.
The directors consider that the carrying amount of trade and other receivables approximates their fair value.
18 Cash and cash equivalents
Cash and cash equivalents are £193.1m (last year £196.1m). The carrying amount of these assets approximates their fair value.
The effective interest rate on short-term bank deposits is 0.03% (last year 0.36%). These deposits have an average maturity of three
days (last year four days).
19 Trade and other payables
Current
Trade and other payables
Social security and other taxes
Accruals and deferred income
Non-current
Other payables
2013
£m
2012
£m
972.7
56.4
474.7
1,503.8
959.5
71.5
418.1
1,449.1
292.1
280.8
Financial statementsMarks and Spencer Group plcNotes to the financial statements continued Annual report and financial statements 2013 101
20 Borrowings and other financial liabilities
Current
Bank loans and overdrafts1
5.875% £267m medium-term notes 20122
5.625% £400m medium term notes 20142
Finance lease liabilities
Non-current
Bank loans
5.625% £400m medium term notes 20142
6.250% US$500m medium-term notes 20173
6.125% £400m medium-term notes 20192
6.125% £300m medium-term notes 20212
4.75% £400m medium term notes 20252
7.125% US$300m medium-term notes 20373
6.875% £250m puttable callable reset medium-term notes 20372
Finance lease liabilities
Total
1. Bank loans and overdrafts includes a £5.0m (last year £5.0m) loan from the Hedge End Park Limited joint venture (see note 28).
2. These notes are issued under Marks and Spencer plc’s £3bn European medium-term note programme and all pay interest annually.
3. Interest on these bonds is payable semi-annually.
2013
£m
151.8
–
400.2
6.7
558.7
0.3
–
335.7
436.9
301.6
401.4
200.7
–
50.7
1,727.3
2,286.0
2012
£m
38.4
280.6
–
8.7
327.7
0.3
399.9
317.8
428.5
301.6
–
189.9
253.3
56.8
1,948.1
2,275.8
On 12 December 2012, the Group issued £400m of 12.5 year medium-term notes at a coupon rate of 4.75%.
In December 2007, the Group issued £250m of 6.875% 30 year Puttable Callable Reset medium-term notes (PCR notes). These
included a coupon rate reset after five years based on a fixed underlying 25 year interest rate. On this basis the rate was reset at
9%. In light of continued low long-term market interest rates and the successful bond issuance in December 2012, the Group
bought back and cancelled these bonds in January 2013 for £330.0m. This resulted in a one-off finance charge of £75.3m
representing the difference between the cost of the buy back and the carrying value of the PCR notes, offset by associated
unamortised bond costs and fees (see note 5).
Finance leases
The minimum lease payments under finance leases fall due as shown in the table on the following page. It is the Group’s policy to
lease certain of its properties and equipment under finance leases. The average lease term for equipment is five years (last year five
years) and 125 years (last year 125 years) for property. Interest rates are fixed at the contract rate. All leases are on a fixed
repayment basis and no arrangements have been entered into for contingent payments. The Group’s obligations under finance
leases are secured by the lessors’ charges over the leased assets.
21 Financial instruments
Treasury policy
The Group operates a centralised treasury function to manage the Group’s funding requirements and financial risks in line with the
Board approved treasury policies and procedures, and their delegated authorities.
The Group’s financial instruments, other than derivatives, comprise borrowings, cash and liquid resources and various items, such
as trade receivables and trade payables that arise directly from its operations. The main purpose of these financial instruments is to
finance the Group’s operations.
The Group treasury function also enters into derivative transactions, principally interest rate and currency swaps and forward
currency contracts. The purpose of these transactions is to manage the interest rate and currency risks arising from the Group’s
operations and financing.
It remains the Group’s policy not to hold or issue financial instruments for trading purposes, except where financial constraints
necessitate the need to liquidate any outstanding investments. The treasury function is managed as a cost centre and does not
engage in speculative trading.
Financial statementsMarks and Spencer Group plcOverviewStrategic reviewFinancial reviewGovernanceFinancial statements and other information Annual report and financial statements 2013 102
21 Financial instruments continued
Financial risk management
The principal financial risks faced by the Group are liquidity/funding, interest rate, foreign currency and counterparty risks. The
policies and strategies for managing these risks are summarised on the following pages:
(a) Liquidity/funding risk
The risk that the Group could be unable to settle or meet its obligations at a reasonable price as they fall due:
– The Group’s funding strategy ensures a mix of funding sources offering flexibility and cost effectiveness to match the
requirements of the Group.
– Operating subsidiaries are financed by a combination of retained profits, bank borrowings, medium-term notes and committed
syndicated bank facilities.
At year end, the Group had a committed syndicated bank revolving credit facility of £1.325bn set to mature on 29 September 2017.
This facility contains only one financial covenant being the ratio of earnings before interest, tax, depreciation, amortisation and rents
payable; to interest plus rents payable. The covenant is measured semi-annually. The Group also has a number of undrawn
uncommitted facilities available to it. At year end, these amounted to £105m (last year £105m), all of which are due to be reviewed
within a year. At the balance sheet date a sterling equivalent of £81m (last year £nil) was drawn under the committed facilities and
£nil (last year £nil) was drawn under the uncommitted facilities.
In addition to the existing borrowings, the Group has a euro medium-term note programme of £3bn, of which £1.5bn (last year
£1.6bn) was in issuance as at the balance sheet date.
The 5.875% £267m bond was repaid in May 2012. A new 4.75% £400m bond was issued under the programme in December
2012 maturing in June 2025.
The contractual maturity of the Group’s non-derivative financial liabilities (excluding trade and other payables (see note 19)) and
derivatives is as follows:
Timing of cash flows
Within one year
Between one and two years
Between two and five years
More than five years
Effect of discounting and foreign exchange
At 31 March 2012
Timing of cash flows
Within one year
Between one and two years
Between two and five years
More than five years
Effect of discounting and foreign exchange
At 30 March 2013
(38.4)
(0.3)
–
–
(38.7)
–
(38.7)
(70.8)
(0.3)
–
–
(71.1)
–
(71.1)
Bank loans
and
overdrafts
£m
Syndicated
bank
facility
£m
Medium-term
notes
£m
Partnership
liability to
the Marks
& Spencer
UK pension
scheme
£m
Total
borrowings
and other
financial
liabilities
£m
Derivative
assets
£m
Derivative
liabilities
£m
(71.9)
–
–
–
(71.9)
–
(71.9)
(520.6) 1,540.1 (1,529.4)
(161.9)
163.6
(526.2)
(103.3)
110.5
(293.0)
(841.8)
804.6
(2,503.0)
(3,842.8) 2,618.8 (2,636.4)
1,495.1
(2,347.7)
Finance
lease
liabilities
£m
(11.8)
(8.8)
(9.2)
(192.1)
(221.9)
156.4
(65.5)
–
–
–
–
–
–
–
(398.5)
(517.1)
(283.8)
(2,310.9)
(3,510.3)
1,338.7
(2,171.6)
(509.6)
(81.0)
(96.6)
–
–
(619.5)
– (1,854.3)
(81.0) (3,080.0)
– 1,003.5
(81.0) (2,076.5)
(9.3)
(4.3)
(7.3)
(188.6)
(209.5)
152.1
(57.4)
(71.9)
(71.9)
(215.5)
(359.2)
(718.5)
95.9
(622.6)
(742.6) 1,787.4 (1,751.9)
(192.0)
201.7
(173.1)
(431.1)
449.3
(842.3)
(2,402.1)
(468.1)
485.6
(4,160.1) 2,924.0 (2,843.1)
1,251.5
(2,908.6)
The present value of finance lease liabilities is as follows:
Within one year
Later than one year and not later than five years
Later than five years
Total
2013
£m
(6.7)
(9.1)
(41.6)
(57.4)
Total
£m
10.7
1.7
7.2
(37.2)
(17.6)
35.5
9.7
18.2
17.5
80.9
2012
£m
(8.7)
(8.7)
(48.1)
(65.5)
(b) Counterparty risk
Counterparty risk exists where the Group can suffer financial loss through default or non-performance by financial institutions.
Exposures are managed through Group treasury policy which limits the value that can be placed with each approved counterparty
to minimise the risk of loss. The counterparties are limited to the approved institutions with secure long-term credit ratings A-/A3 or
better, assigned by Moody’s and Standard & Poor’s respectively, unless approved by exception by the CFO. Limits are reviewed
regularly by senior management. The credit risk of these financial instruments is estimated as the fair value of the assets resulting
from the contracts.
Financial statementsMarks and Spencer Group plcNotes to the financial statements continued Annual report and financial statements 2013 103
21 Financial instruments continued
The table below analyses the Group’s short-term investments and derivative assets by credit exposure excluding bank balances,
store cash and cash in transit.
Short-term investments1
Derivative assets²
At 31 March 2012
Short-term investments¹
Derivative assets²
At 30 March 2013
AAAm
£m
198.5
–
198.5
AAAm
£m
0.3
–
0.3
AAA
£m
–
–
–
AAA
£m
–
–
–
Credit rating of counterparty3
AA
£m
2.0
1.9
3.9
AA
£m
–
–
–
AA-
£m
42.8
9.8
52.6
AA-
£m
9.5
16.9
26.4
A+
£m
27.1
–
27.1
A+
£m
11.6
6.4
18.0
A
£m
20.0
18.2
38.2
A
£m
13.2
42.4
55.6
A-
£m
–
7.6
7.6
A-
£m
–
16.1
16.1
Total
290.4
37.5
327.9
Total
34.6
81.8
116.4
1. Includes cash on deposit and money market funds held by Marks and Spencer Scottish Limited Partnership, Marks and Spencer plc and M.S. General Insurance LP.
2. Excludes the embedded derivative within the lease host contract.
3. Standard & Poor’s equivalent rating shown as reference to the lowest credit rating of the counterparty from either Standard & Poor’s or Moody’s.
The Group has very low retail credit risk due to transactions being principally of a high volume, low value and short maturity.
The maximum exposure to credit risk at the balance sheet date was as follows: trade receivables £114m (last year £115m), other
receivables £60m (last year £58m), cash and cash equivalents £193m (last year £196m) and derivatives £108m (last year £111m).
(c) Foreign currency risk
Transactional foreign currency exposures arise from both the export of goods from the UK to overseas subsidiaries, and from the
import of materials and goods directly sourced from overseas suppliers.
Group treasury hedges these exposures principally using forward foreign exchange contracts progressively covering up to 100% out
to 18 months. Where appropriate, hedge cover can be taken out for longer than 18 months, with Board approval. The Group is
primarily exposed to foreign exchange risk in relation to sterling against movements in US dollar and euro.
Forward foreign exchange contracts in relation to the Group’s forecast currency requirements are designated as cash flow hedges
with fair value movements recognised directly in comprehensive income. To the extent that these hedges cover actual currency
payables or receivables, then associated fair value movements previously recognised in comprehensive income are recorded in the
income statement in conjunction with the corresponding asset or liability. As at the balance sheet date the gross notional value in
sterling terms of forward foreign exchange sell or buy contracts amounted to £1,342m (last year £1,221m) with a weighted average
maturity date of seven months (last year seven months).
Gains and losses in equity on forward foreign exchange contracts as at 30 March 2013 will be released to the income statement at
various dates over the following 15 months (last year 15 months) from the balance sheet date.
The Group uses a combination of foreign currency debt and derivatives to hedge balance sheet translation exposures. As at the
balance sheet date €200m (last year €242m) and HK$484m (last year HK$291m) of derivatives was hedging overseas net assets.
The Group also hedges foreign currency intercompany loans where these exist. Forward foreign exchange contracts in relation to
the hedging of the Group’s foreign currency intercompany loans are designated as held for trading with fair value movements being
recognised in the income statement. The corresponding fair value movement of the intercompany loan balance results in an overall
£nil impact on the income statement. As at the balance sheet date, the gross notional value of intercompany loan hedges was
£307m (last year £187m).
After taking into account the hedging derivatives entered into by the Group, the currency and interest rate exposure of the Group’s
financial liabilities excluding short-term payables and the liability to the Marks & Spencer UK Pension Scheme (which has no
currency or interest rate exposure) and the Marks and Spencer Czech Republic a.s. put option, is set out below:
Currency
Sterling
Euro
Other
Fixed rate
£m
Floating rate
£m
1,929.9
3.9
–
1,933.8
318.1
6.7
27.4
352.2
2013
Total
£m
2,248.0
10.6
27.4
2,286.0
Fixed rate
£m
Floating rate
£m
2,030.4
6.8
–
2,037.2
205.2
5.1
28.3
238.6
2012
Total
£m
2,235.6
11.9
28.3
2,275.8
Financial statementsMarks and Spencer Group plcOverviewStrategic reviewFinancial reviewGovernanceFinancial statements and other information Annual report and financial statements 2013 104
21 Financial instruments continued
The floating rate sterling and euro borrowings are linked to interest rates related to LIBOR. These rates are for periods between one
and six months.
As at the balance sheet date and excluding finance leases, the fixed rate sterling borrowings are at an average rate of 5.6% (last
year 5.8%) and the weighted average time for which the rate is fixed is eight years (last year nine years).
(d) Interest rate risk
The Group is exposed to interest rate risk in relation to sterling, US dollar and euro variable rate financial assets and liabilities.
The Group’s policy is to use derivative contracts where necessary to maintain a mix of fixed and floating rate borrowings to manage
this risk. The structure and maturity of these derivatives correspond to the underlying borrowings and are accounted for as fair value
or cash flow hedges as appropriate.
At the balance sheet date, fixed rate borrowings amounted to £1,933.8m (last year £2,037.2m) representing the public bond issues
and finance leases, amounting to 85% (last year 90%) of the Group’s gross borrowings.
The effective interest rates at the balance sheet date were as follows:
Committed and uncommitted borrowings
Medium-term notes
Finance leases
Derivative financial instruments
Current
Options
Forward foreign exchange contracts
– held for trading
– cash flow hedges
– held for trading
– net investment hedges
Non-current
Cross currency swaps
Forward foreign exchange contracts
Interest rate swaps
Embedded derivative (see note 5)
– cash flow hedges
– cash flow hedges
– fair value hedge
2013
%
1.2
5.6
4.3
Assets
£m
53.6
13.3
0.1
–
67.0
–
0.1
24.0
20.1
44.2
2012
%
0.5
5.8
4.5
2012
Liabilities
£m
(53.6)
(5.1)
(1.3)
(0.5)
(60.5)
(26.5)
(0.7)
–
–
(27.2)
Assets
£m
2013
Liabilities
£m
–
34.0
3.6
4.9
42.5
3.2
3.8
32.4
25.9
65.3
–
(12.8)
(0.9)
–
(13.7)
(12.4)
(0.7)
–
–
(13.1)
Last year, the amounts reported as options held for trading in derivatives assets and liabilities represented the fair value of the call
option with the Puttable Callable reset notes mirrored by the fair value of the sold option to have this call assigned. In January 2013
the Group bought back and cancelled these notes. The Group holds a number of interest rate swaps to re-designate its sterling
fixed debt to floating debt. These are reported as fair value hedges. The ineffective portion recognised in the profit or loss that arises
from fair value hedges amounts to £nil (last year £0.2m loss) as the loss on the hedged item was £8.0m (last year £23.6m loss) and
the gain on the hedging instrument was £8.0m (last year £23.8m gain).The Group also holds a number of cross currency swaps to
re-designate its fixed rate US dollar debt to fixed rate sterling debt. These are reported as cash flow hedges.
Sensitivity analysis
The table below illustrates the estimated impact on the income statement and equity as a result of market movements in foreign
exchange and interest rates in relation to the Group’s financial instruments. The Directors consider that a 2% +/- (last year 2%)
movement in interest rates and a 20% +/- (last year 20%) weakening in sterling represents a reasonable possible change. However
this analysis is for illustrative purposes only.
The impact in the income statement due to changes in interest rates reflects the effect on the Group’s floating rate debt as at the
balance sheet date. The impact in equity reflects the fair value movement in relation to the Group’s cross currency swaps.
The impact from foreign exchange movements reflects the change in the fair value of the Group’s transactional foreign exchange
cash flow hedges and the net investment hedges at the balance sheet date. The equity impact shown for foreign exchange
sensitivity relates to derivative and non-derivative financial instruments hedging net investments. This value is expected to be fully
offset by the re-translation of the hedged foreign currency net assets leaving a net equity impact of zero.
The table excludes financial instruments that expose the Group to interest rate and foreign exchange risk where such risk is fully
hedged with another financial instrument. Also excluded are trade receivables and payables as these are either sterling denominated
or the foreign exchange risk is hedged.
Financial statementsMarks and Spencer Group plcNotes to the financial statements continued Annual report and financial statements 2013 105
21 Financial instruments continued
At 31 March 2012
Impact on income statement: gain
Impact on other comprehensive income: (loss)/gain
At 30 March 2013
Impact on income statement: gain/(loss)
Impact on other comprehensive income: (loss)/gain
2% decrease
in interest
rates
£m
2% increase
in interest
rates
£m
20%
weakening
in sterling
£m
20%
strengthening
in sterling
£m
1.5
(5.3)
3.7
(6.9)
0.8
3.0
(5.6)
3.5
–
70.2
–
100.8
–
(46.8)
–
(67.2)
Fair value hierarchy
The Group uses the following hierarchy for determining and disclosing the fair value of financial instruments by valuation technique:
– Level 1: quoted (unadjusted) prices in active markets for identical assets or liabilities;
– Level 2: other techniques for which all inputs which have a significant effect on the recorded fair value are observable, either
directly or indirectly; and
– Level 3: techniques which use inputs which have a significant effect on the recorded fair value that are not based on
observable market data. Unlisted equity investments are included in Level 3. The fair value of embedded derivatives is
determined using the present value of the estimated future cash flows based on financial forecasts. The nature of the valuation
techniques and the judgement around the inputs mean that a change in assumptions could result in significant change in the
fair value of the instrument.
As at the end of the reporting period, the Group held the following financial instruments measured at fair value:
Assets measured at fair value
Financial assets at fair value through
profit and loss
– Trading derivatives
Derivatives used for hedging
Embedded derivatives (note 5)
Available-for-sale financial assets
– Equity securities
Short term investments
Liabilities measured at fair value
Financial liabilities at fair value through
profit and loss
– Trading derivatives
Derivative used for hedging
–
–
–
–
–
–
–
Level 1
£m
Level 2
£m
Level 3
£m
Level 1
£m
Level 2
£m
Level 3
£m
2013
Total
£m
3.6
78.3
25.9
3.0
10.7
3.6
78.3
–
–
10.7
–
–
25.9
3.0
–
2012
Total
£m
53.7
37.4
20.1
3.0
254.4
53.7
37.4
–
–
254.4
–
–
20.1
3.0
–
–
–
–
–
–
(0.9)
(25.9)
–
–
(0.9)
(25.9)
(54.9)
(32.8)
–
–
(54.9)
(32.8)
There were no transfers between Level 1 and Level 2 fair value measurements, and no transfers into and out of Level 3 fair value
measurements in the current or prior years.
The following table presents the changes in Level 3 instruments:
Opening balance
Gains recognised in the income statement
Closing balance
2013
£m
23.1
5.8
28.9
2012
£m
8.7
14.4
23.1
The gains recognised in the income statement relate to the valuation of the embedded derivative in a lease contract. A discount
unwind on the put option over a non-controlling interest of £nil (last year £1.0m) has been recorded within underlying interest
charges, with the fair value movement of the put option of £nil (last year £15.6m) and the fair value movement of the embedded
derivative of £5.8m (last year £0.2m) treated as adjustment to reported profit (see note 5).
Fair value of financial instruments
With the exception of the Group’s fixed rate bond debt and the Partnership liability to the Marks & Spencer UK Pension scheme,
there were no material differences between the carrying value of non-derivative financial assets and financial liabilities and their fair
values as at the balance sheet date.
The carrying value of the Group’s fixed rate bond debt was £2,076.5m (last year £2,171.6m); the fair value of this debt was
£2,196.6m (last year £2,121.7m). The carrying value of the Partnership liability to the Marks & Spencer UK Pension scheme is
£622.6m and the fair value of this liability is £606.0m.
Financial statementsMarks and Spencer Group plcOverviewStrategic reviewFinancial reviewGovernanceFinancial statements and other information Annual report and financial statements 2013 106
21 Financial instruments continued
Capital policy
The Group’s objectives when managing capital are to safeguard its ability to continue as a going concern in order to provide optimal
returns for shareholders and to maintain an efficient capital structure to reduce the cost of capital.
In doing so the Group’s strategy is to maintain a capital structure commensurate with an investment grade credit rating and to retain
appropriate levels of liquidity headroom to ensure financial stability and flexibility. To achieve this strategy the Group regularly
monitors key credit metrics such as the gearing ratio, cash flow to net debt (see note 27) and fixed charge cover to maintain this
position. In addition, the Group ensures a combination of appropriate committed short-term liquidity headroom with a diverse and
balanced long-term debt maturity profile. As at the balance sheet date the Group’s average debt maturity profile was eight years
(last year nine years). During the year the Group maintained an investment grade credit rating of Baa3 (stable) with Moody’s and
BBB- (stable) with Standard & Poor’s.
In order to maintain or realign the capital structure, the Group may adjust the number of dividends paid to shareholders, return
capital to shareholders, issue new shares or sell assets to reduce debt.
22 Provisions
At start of year
Provided in the year
Released in the year
Utilised during the year
Exchange differences
At end of year
Analysis of provisions:
Current
Non-current
Total provisions
2013
£m
32.4
13.9
(1.3)
(9.8)
–
35.2
19.2
16.0
35.2
2012
£m
44.7
7.8
(3.4)
(16.5)
(0.2)
32.4
8.4
24.0
32.4
The provisions primarily comprise of one-off costs related to the strategic restructure in the UK in 2008/09, including onerous leases
and costs in relation to the current restructure of the logistics distribution network.
The current element of the provision primarily relates to onerous leases and redundancies. The non-current element of the provision
relates to store closures, primarily onerous leases, and is expected to be utilised over a period of ten years.
23 Deferred tax
Deferred tax is provided under the balance sheet liability method using a tax rate of 23% (last year 24%) for UK differences and local
tax rates for overseas differences. Details of the changes to the UK corporation tax rate and the impact on the Group are described
in note 7.
The movements in deferred tax assets and liabilities (after offsetting balances within the same jurisdiction as permitted by IAS 12 –
‘Income Taxes’) during the year are shown below.
Deferred tax (liabilities)/assets
At 3 April 2011
Credited/(charged) to the income statement
(Charged)/credited to equity
At 31 March 2012
At 1 April 2012
Credited/(charged) to the income statement
(Charged)/credited to equity
At 30 March 2013
Non-current
assets temporary
differences
£m
(63.8)
5.6
–
(58.2)
(58.2)
5.7
–
(52.5)
Accelerated
capital
allowances
£m
(104.8)
4.2
–
(100.6)
(100.6)
10.0
–
(90.6)
Pension
temporary
differences
£m
(27.8)
4.4
(5.1)
(28.5)
(28.5)
(6.5)
(51.7)
(86.7)
Other
short-term
temporary
differences
£m
10.0
(2.9)
(0.6)
6.5
6.5
0.7
(0.7)
6.5
Total
UK
deferred
tax
£m
(186.4)
11.3
(5.7)
(180.8)
(180.8)
9.9
(52.4)
(223.3)
Overseas
deferred
tax
£m
(10.1)
(1.5)
(3.3)
(14.9)
(14.9)
1.3
6.2
(7.4)
Total
£m
(196.5)
9.8
(9.0)
(195.7)
(195.7)
11.2
(46.2)
(230.7)
The deferred tax liability on non-current assets is stated net of the benefit of capital losses with a tax value of £62.0m (last year
£71.4m). No benefit has been recognised in respect of unexpired trading losses carried forward in overseas jurisdictions with a tax
value of £30.8m (last year £26.8m).
In addition, the Group is claiming UK tax relief for losses incurred by some of its current and former European subsidiaries. In light of
the continuing litigation no asset has been recognised in respect of these claims.
No deferred tax has been recognised in respect of undistributed earnings of overseas subsidiaries and joint ventures, as no material
liability is expected to arise on distribution of these earnings under applicable tax legislation.
Financial statementsMarks and Spencer Group plcNotes to the financial statements continued Annual report and financial statements 2013 107
24 Ordinary share capital
Issued and fully paid ordinary shares of 25p each
At start of year
Shares issued on exercise of share options
At end of year
Shares
1,605,507,102
8,381,090
1,613,888,192
2013
£m
401.4
2.1
403.5
Shares
1,584,863,882
20,643,220
1,605,507,102
2012
£m
396.2
5.2
401.4
Issue of new shares
8,381,090 (last year 20,643,220) ordinary shares having a nominal value of £2.1m (last year £5.2m) were allotted during the year under
the terms of the Company’s schemes which are described in note 13. The aggregate consideration received was £22.9m (last year
£44.3m).
25 Contingencies and commitments
A. Capital commitments
Commitments in respect of properties in the course of construction
2013
£m
9.5
2012
£m
71.4
In respect of its interest in a joint venture, the Group is committed to incur capital expenditure of £nil (last year £nil).
B. Other material contracts
In the event of a material change in the trading arrangements with certain warehouse operators, the Group has a commitment to
purchase property, plant and equipment, at values ranging from historical net book value to market value, which are currently owned
and operated by the warehouse operators on the Group’s behalf.
See note 12 for details on the partnership arrangement with the Marks & Spencer UK Pension Scheme.
C. Commitments under operating leases
The Group leases various stores, offices, warehouses and equipment under non-cancellable operating lease agreements. The
leases have varying terms, escalation clauses and renewal rights.
Total future minimum rentals payable under non-cancellable operating leases are as follows:
Within one year
Later than one year and not later than five years
Later than five years and not later than ten years
Later than ten years and not later than 15 years
Later than 15 years and not later than 20 years
Later than 20 years and not later than 25 years
Later than 25 years
Total
The total future sublease payments to be received are £50.6m (last year £63.3m).
26 Analysis of cash flows given in the statement of cash flows
Cash flows from operating activities
Profit on ordinary activities after taxation
Income tax expense
Finance costs
Finance income
Operating profit
Increase in inventories
Decrease/(increase) in receivables
Payments to acquire leasehold properties
Increase in payables
Non-underlying operating cash outflows
Depreciation, amortisation and asset write-offs
Share-based payments
Pension costs charged against operating profit
Cash contributions to pension schemes
Non-underlying operating profit items (see note 5)
Cash generated from operations
2013
£m
2012
£m
276.9
1,064.5
1,053.7
695.1
366.8
247.0
1,143.0
4,847.0
2013
£m
458.0
106.3
218.2
(26.5)
756.0
(91.2)
9.5
–
77.0
(21.4)
467.4
25.8
68.4
(70.9)
25.6
1,246.2
257.8
997.4
1,029.5
772.7
385.1
259.3
1,210.1
4,911.9
2012
£m
489.6
168.4
136.8
(48.3)
746.5
(0.1)
(17.1)
(1.2)
103.4
(22.9)
479.7
32.5
57.7
(89.9)
63.5
1,352.1
Non-underlying operating cash outflows relate to the utilisation of the provisions for UK restructuring, strategic programme costs
and the reduction in M&S Bank income for the impact of the financial product mis-selling provision.
Financial statementsMarks and Spencer Group plcOverviewStrategic reviewFinancial reviewGovernanceFinancial statements and other information Annual report and financial statements 2013 108
27 Analysis of net debt
A. Reconciliation of movement in net debt
Net cash
Bank loans, overdrafts and syndicated bank facility (note 20)
Less: amounts treated as financing (see below)
Cash and cash equivalents (note 18)
Net cash per statement of cash flows
Current financial assets (see note 16)
Debt financing
Bank loans and overdrafts treated as financing (see above)
Medium-term notes
Finance lease liabilities (note 20)
Partnership liability to the Marks & Spencer UK Pension Scheme (note 12)
Debt financing
Net debt
B. Reconciliation of net debt to statement of financial position
Statement of financial position and related notes
Cash and cash equivalents (note 18)
Current financial assets (note 16)
Bank loans and overdrafts (note 20)
Medium-term notes – net of hedging derivatives
Finance lease liabilities (note 20)
Partnership liability to the Marks & Spencer UK Pension Scheme (note 12)
Interest payable included within related borrowing
Total net debt
At
1 April
2012
£m
(38.7)
38.4
(0.3)
196.1
195.8
260.5
(38.4)
(2,137.6)
(65.5)
(71.9)
(2,313.4)
(1,857.1)
Exchange and
other non-cash
movements
£m
Cash flow
£m
(113.4)
81.3
(32.1)
(3.9)
(36.0)
(243.7)
(81.3)
131.4
11.0
71.9
133.0
(146.7)
–
–
–
0.9
0.9
0.1
–
(2.6)
(2.9)
(606.0)
(611.5)
(610.4)
At
30 March
2013
£m
(152.1)
119.7
(32.4)
193.1
160.7
16.9
(119.7)
(2,008.8)
(57.4)
(606.0)
(2,791.9)
(2,614.3)
2013
£m
2012
£m
193.1
16.9
(152.1)
(2,040.2)
(57.4)
(622.6)
(2,662.3)
48.0
(2,614.3)
196.1
260.5
(38.7)
(2,181.8)
(65.5)
(71.9)
(1,901.3)
44.2
(1,857.1)
28 Related party transactions
A. Subsidiaries
Transactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation and are
not disclosed in this note. Transactions between the Company and its subsidiaries are disclosed in the Company’s separate financial
statements.
B. Hedge End joint venture
A loan of £5.0m was received from the joint venture on 9 October 2002. It is repayable on five business days’ notice and was
renewed on 1 January 2013. Interest was charged on the loan at 2.0% until 31 December 2009 and 0.5% thereafter.
C. Lima (Bradford) joint venture
A loan facility was provided to the joint venture on 11 August 2008. At 30 March 2013, £21.7m (last year £25.4m) was drawn down
on this facility. Interest was charged on the loan at 1.1% above 3-month LIBOR. The Group has entered into a rental agreement with
the joint venture and £4.6m (last year £4.5m) of rental charges were incurred. There was no outstanding balance at March 2013.
Financial statementsMarks and Spencer Group plcNotes to the financial statements continued
Annual report and financial statements 2013 109
28 Related party transactions continued
D. Marks & Spencer Pension Scheme
Details of other transactions and balances held with the Marks & Spencer UK Pension Scheme are set out in notes 11 and 12.
E. Key management compensation
Salaries and short-term benefits
Post-employment benefits
Share-based payments
Total
2013
£m
9.2
–
2.6
11.8
2012
£m
8.8
0.1
6.0
14.9
Key management comprises Board directors only. Further information about the remuneration of individual directors is provided in
the Remuneration report. During the year, key management have purchased goods at the Group’s usual prices less a 20% discount.
This discount is available to all staff employed directly by the Group in the UK.
F. Other related party transactions
Supplier transactions occurred during the year between the Group and a company controlled by a close family member of Kate
Bostock, a former executive director of the Group. These transactions amounted to £6.5m during the period to 1 October 2012, the
date of Kate Bostock’s resignation (last year £12.7m). The company was a supplier prior to Kate’s employment by the Group.
Supplier transactions occurred during the year between the Group and a company controlled by Martha Lane Fox’s partner. Martha
is a non-executive director of the Group. These transactions amounted to £2.4m during the year (last year £1.9m) with an
outstanding trade payable of £0.2m at 30 March 2013 (last year £0.5m).
Financial statementsMarks and Spencer Group plcOverviewStrategic reviewFinancial reviewGovernanceFinancial statements and other information Company statement of financial position
Annual report and financial statements 2013 110
Assets
Non-current assets
Investments in subsidiary undertakings
Total assets
Liabilities
Current liabilities
Amounts owed to subsidiary undertakings
Total liabilities
Net assets
Equity
Ordinary share capital
Share premium account
Capital redemption reserve
Merger reserve
Retained earnings
Total equity
As at
30 March 2013
£m
As at
31 March 2012
£m
Notes
C5
9,207.8
9,207.8
9,194.6
9,194.6
2,516.8
2,516.8
6,691.0
403.5
315.1
2,202.6
1,397.3
2,372.5
6,691.0
2,541.7
2,541.7
6,652.9
401.4
294.3
2,202.6
1,397.3
2,357.3
6,652.9
The financial statements were approved by the Board and authorised for issue on 20 May 2013. The financial statements also
comprise the notes on pages 111 and 112.
Marc Bolland Chief Executive Officer
Alan Stewart Chief Finance Officer
Company statement of changes in shareholders’ equity
At 3 April 2011
Profit for the year
Dividends
Capital contribution for share-based payments
Shares issued on the exercise of employee share options
At 31 March 2012
At 1 April 2012
Profit for the year
Dividends
Capital contribution for share-based payments
Shares issued on the exercise of employee share options
At 30 March 2013
Company statement of cash flows
Cash flows from investing activities
Dividends received
Net cash generated from investing activities
Cash flows from financing activities
Shares issued on exercise of employee share options
Repayment of intercompany loan
Equity dividends paid
Net cash used in financing activities
Net cash inflow from activities
Cash and cash equivalents at beginning and end of year
Ordinary
share
capital
£m
396.2
–
–
–
5.2
401.4
401.4
–
–
–
2.1
403.5
Share
premium
account
£m
255.2
–
–
–
39.1
294.3
294.3
–
–
–
20.8
315.1
Capital
redemption
reserve
£m
2,202.6
–
–
–
–
2,202.6
2,202.6
–
–
–
–
2,202.6
Merger
reserve
£m
1,397.3
–
–
–
–
1,397.3
1,397.3
–
–
–
–
1,397.3
Retained
Total
earnings
£m
£m
6,588.0
2,336.7
273.6
273.6
(267.8)
(267.8)
14.8
14.8
44.3
–
2,357.3
6,652.9
2,357.3 6,652.9
273.3
(271.3)
13.2
22.9
6,691.0
273.3
(271.3)
13.2
–
2,372.5
52 weeks ended
30 March
2013
£m
52 weeks ended
31 March
2012
£m
273.3
273.3
22.9
(24.9)
(271.3)
(273.3)
–
–
273.6
273.6
44.3
(50.1)
(267.8)
(273.6)
–
–
Financial statementsMarks and Spencer Group plc Company notes to the financial statements
Annual report and financial statements 2013 111
C1 Accounting policies
The Company’s accounting policies are the same as those set out in note 1 of the Group financial statements, except as noted
below.
Investments in subsidiaries are stated at cost less, where appropriate, provisions for impairment. The Company grants share-based
payments to the employees of subsidiary companies. Each period the fair value of the employee services received by the subsidiary
as a capital contribution from the Company is reflected as an addition to investments in subsidiaries.
Loans from other Group undertakings and all other payables are initially recorded at fair value, which is generally the proceeds
received. They are then subsequently carried at amortised cost. The loans are non-interest bearing and repayable on demand.
The Company’s financial risk is managed as part of the Group’s strategy and policies as discussed in note 21 of the Group financial
statements.
In accordance with the exemption allowed by Section 408(3) of the Companies Act 2006, the Company has not presented its own
income statement.
C2 Employees
The Company had no employees during the current or prior year. Directors received emoluments in respect of their services to the
Company during the year of £968,000 (last year £932,000). The Company did not operate any pension schemes during the current
or preceding year.
C3 Auditors’ remuneration
Auditors’ remuneration in respect of the Company’s annual audit has been borne by its subsidiary Marks and Spencer plc and has
been disclosed on a consolidated basis in the Company’s consolidated financial statements as required by Section 494(4)(a) of the
Companies Act 2006.
C4 Dividends
Dividends on equity ordinary shares
Paid final dividend
Paid interim dividend
2013
per share
2012
per share
10.8p
6.2p
17.0p
10.8p
6.2p
17.0p
2013
£m
172.3
99.0
271.3
2012
£m
170.2
97.6
267.8
In addition, the directors have proposed a final dividend in respect of the year ended 30 March 2013 of 10.8p per share amounting
to a dividend of £173.5m. It will be paid on 12 July 2013 to shareholders who are on the Register of Members on 31 May 2013. In
line with the requirements of IAS 10 – ‘Events after the Reporting Period’, this dividend has not been recognised within these results.
C5 Investments
A. Investments in subsidiary undertakings
Beginning of the year
Additional investment in subsidiary undertakings relating to share-based payments
End of year
Shares in subsidiary undertakings represent the Company’s investment in Marks and Spencer plc.
2013
£m
9,194.6
13.2
9,207.8
2012
£m
9,179.8
14.8
9,194.6
Financial statementsMarks and Spencer Group plcOverviewStrategic reviewFinancial reviewGovernanceFinancial statements and other information
Company notes to the financial statements continued
Annual report and financial statements 2013 112
C5 Investments continued
B. Principal subsidiary undertakings
The Company’s principal subsidiary undertakings are set out below. A schedule of interests in all undertakings is filed with the
Annual Return.
Marks and Spencer plc
Marks and Spencer International Holdings Limited
Marks and Spencer (Nederland) BV
Marks and Spencer Marinopoulos BV
Marks and Spencer Czech Republic a.s.
Marks and Spencer (Ireland) Limited
Marks and Spencer (Asia Pacific) Limited
Marks & Spencer Simply Foods Limited
Marks and Spencer Marinopoulos Greece SA
M.S. General Insurance L.P.
per una Group Limited
Marks and Spencer Scottish Limited Partnership
1. Marks and Spencer plc is the general partner.
Principal activity
Retailing
Holding company
Holding company
Holding company
Retailing
Retailing
Retailing
Retailing
Retailing
Financial services
Procurement
Property investment
Country of incorporation and operation
Great Britain
Great Britain
The Netherlands
The Netherlands
Czech Republic
Republic of Ireland
Hong Kong
Great Britain
Greece
Guernsey
Great Britain
Great Britain
Proportion of voting rights
and shares held by:
Company
100%
–
–
–
–
–
–
–
–
–
–
–
A subsidiary
–
100%
100%
100%
51%
100%
100%
100%
80%
100%
100%
–¹
The Company has taken advantage of the exemption under Section 410 of the Companies Act 2006 by providing information only
in relation to subsidiary undertakings whose results or financial position, in the opinion of the directors, principally affected the
financial statements.
C6 Related party transactions
During the year, the Company has received dividends from Marks and Spencer plc of £273.3m (last year £273.6m) and decreased
its loan from Marks and Spencer plc by £24.9m (last year £50.1m). The outstanding balance was £2,516.8m (last year £2,541.7m)
and is non-interest bearing. There were no other related party transactions.
Financial statementsMarks and Spencer Group plc Group financial record
Annual report and financial statements 2013 113
Income statement
Revenue¹
UK
International
Operating profit¹
UK
International
Total operating profit
Net interest payable
Pension finance income
Profit on ordinary activities before taxation – continuing operations
Basic earnings/ Weighted
average ordinary shares in issue
Underlying basic earnings/
Weighted average ordinary
shares in issue
Underlying earnings per share/
Dividend per share
Operating profit before
depreciation and operating
lease charges/Fixed charges
Analysed between:
Underlying profit before tax
Adjustments to reported profit
Income tax expense
Profit after taxation
Basic earnings per share¹
Underlying basic earnings per share¹
Dividend per share declared
in respect of the year
Dividend cover
Retail fixed charge cover
Statement of financial position
Net assets (£m)
Net debt² (£m)
Capital expenditure (£m)
Stores and space
UK stores
UK selling space (m sq ft)
International stores
International selling space (m sq ft)
Staffing (full-time equivalent)
UK
International
1. Based on continuing operations.
2. Excludes accrued interest.
2013
52 weeks
£m
2012
52 weeks
£m
2011
52 weeks
£m
2010
53 weeks
£m
2009
52 weeks
£m
8,951.4
1,075.4
10,026.8
8,868.2
1,066.1
9,934.3
8,733.0
1,007.3
9,740.3
8,567.9
968.7
9,536.6
8,164.3
897.8
9,062.1
635.8
120.2
756.0
(212.9)
21.2
564.3
665.2
(100.9)
(106.3)
458.0
658.0
88.5
746.5
(114.1)
25.6
658.0
705.9
(47.9)
(168.4)
489.6
679.0
157.9
836.9
(93.9)
37.6
780.6
714.3
66.3
(182.0)
598.6
701.1
150.9
852.0
(160.1)
10.8
702.7
694.6
8.1
(179.7)
523.0
755.0
115.7
870.7
(199.9)
35.4
706.2
604.4
101.8
(199.4)
506.8
2013
52 weeks
2012
52 weeks
2011
52 weeks
2010
53 weeks
2009
52 weeks
29.2p
32.5p
38.8p
33.5p
32.3p
32.7p
34.9p
34.8p
33.0p
28.0p
17.0p
17.0p
17.0p
15.0p
17.8p
1.9p
2.1x
2.0x
2.2x
1.6x
3.5x
3.9x
4.0x
4.0x
3.5x
2,486.4
2,614.3
821.3
2,778.8
1,857.1
737.5
2,677.4
1,900.9
491.5
2,185.9
2,068.4
397.1
2,100.6
2,490.8
653.3
766
16.4
418
5.4
731
16.0
387
4.7
703
15.6
361
4.2
690
15.4
320
3.6
668
14.9
296
3.1
51,835
5,683
51,938
5,116
49,922
4,753
48,722
4,272
50,614
3,539
Financial statementsMarks and Spencer Group plcOverviewStrategic reviewFinancial reviewGovernanceFinancial statements and other information Other information
Marks and Spencer Group plc
Annual report and financial statements 2013 114
Annual report and financial statements 2013 114
Shareholder information
Analysis of share register
Ordinary shares
As at 30 March 2013, there were 195,544 holders of ordinary shares whose shareholdings are analysed below.
Range
1 – 500
501 – 1,000
1,001 – 2,000
2,001 – 5,000
5,001 – 10,000
10,001 – 100,000
100,001 – 1,000,000
1,000,001 – HIGHEST
Total
Number of
holdings
98,889
38,611
29,835
20,015
5,201
2,427
385
181
195,544
Percentage
of total
shareholders
Number of
ordinary shares
19,338,260
50.57%
28,865,092
19.75%
42,861,153
15.26%
61,545,081
10.23%
36,001,930
2.66%
54,969,725
1.24%
0.20%
126,882,718
0.09% 1,243,424,233
100% 1,613,888,192
Percentage
of ordinary
shares
1.20%
1.79%
2.66%
3.81%
2.23%
3.41%
7.86%
77.04%
100%
Many private investors hold their shares through nominee companies, therefore the percentage of private holders is much higher
than that shown – we estimate approximately 30%.
Holders
Private
Institutional and Corporate
Total
Managing your shares
The Company’s register of shareholders is maintained by our
Registrar, Equiniti. Shareholders with queries relating to their
shareholding should contact Equiniti directly. Their contact
details can be found on the opposite page. Alternatively,
shareholders may find the ‘Investors’ section of our corporate
website useful for general queries.
Dividends
Paid in January and July each year. We encourage shareholders
to have dividends paid directly into their bank account to ensure
efficient payment and cleared funds on the payment date. Those
selecting this payment method receive an annual consolidated
tax voucher in January, showing both dividend payments in the
respective tax year. However, we are able to send separate tax
vouchers with each payment, if preferred.
To change how you receive your dividends either log on to
shareview.co.uk or contact Equiniti.
Duplicate documents
Around 10,000 shareholders still receive duplicate
documentation and split dividend payments due to having more
than one account on the share register. If you think you fall into
this group and would like to combine your accounts, please
contact Equiniti.
If you move house
It is extremely important that you contact Equiniti to inform them
of your new address as soon as possible. If you hold 1,500
shares or fewer, and reside in the UK, this can be done quickly
over the telephone. However, for holdings greater than 1,500
your instruction will need to be in writing, quoting your full name,
shareholder reference number (if known), previous address and
new address.
Number of
holdings
187,711
7,833
195,544
Percentage
of total
shareholders
Number of
ordinary shares
95.99%
271,377,253
4.01% 1,342,510,939
100% 1,613,888,192
Percentage
of ordinary
shares
16.82%
83.18%
100%
Corporate website
Whether you are interested in learning more about our heritage,
our social, environmental and ethical responsibilities, our
approach to corporate governance or viewing our latest press
releases, the M&S corporate website provides a wealth of
information for shareholders.
If you have a general query regarding your shareholding, it can
often be worthwhile making the ‘Investors’ section of our
corporate website your first port of call as it contains much of
the information that is most frequently requested from our
shareholder helpline. Shareholders are also encouraged to sign
up to receive emailed news alerts, which include all financial
news releases throughout the year. These are not mailed to
shareholders. You can access the corporate website at
marksandspencer.com/thecompany.
The directors are responsible for the maintenance and integrity
of the financial information on our website. This information has
been prepared under the relevant accounting standards and
legislation.
ShareGift
Do you have a small shareholding which is uneconomical to
sell? You may want to consider donating it to ShareGift
(Registered charity no. 1052686), a charity that specialises in
the donation of small, unwanted shareholdings to good causes.
You can find out more by visiting sharegift.org or by calling
+44 (0)207 930 3737.
Other information
Marks and Spencer Group plc
Annual report and financial statements 2013 115
O
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Electronic communication
In recent years, changes in legislation have removed the need for
companies to mail endless amounts of paper to shareholders.
Instead, companies are turning to the speed, environmental and
cost-saving benefits of communicating with their shareholders via
the internet. M&S has actively been encouraging shareholders to
sign up to this method of communication, as the reduction in
printing costs and paper usage make a valuable contribution to
our Plan A commitments. It is equally beneficial to shareholders,
who can be notified by email whenever we release trading
updates for investors to the London Stock Exchange. These are
not mailed to shareholders.
Registration is very straightforward through Shareview, the
internet based platform provided by Equiniti. For information
about how to register, please visit the ‘Investors’ section of our
corporate website.
Capital Gains Tax
For the purpose of Capital Gains Tax, the price of an ordinary
share on 31 March 1982 was 153.5p, which when adjusted
for the 1 for 1 scrip issue in 1984, gives a figure of 76.75p.
Following the capital reorganisation in March 2002, HMRC
has confirmed the base cost for CGT purposes was 372.35p
(81.43%) for an ordinary share and 68.75p (18.75%) for a
B share.
AGM 2013
This year’s AGM will be held at Wembley Stadium, Wembley,
London HA9 0WS on Tuesday 9 July 2013. The meeting will
start at 11am and registration will be available from 9.30am.
Key dates
29 May 2013
31 May 2013
9 July 2013*
9 July 2013
12 July 2013
November 2013*
13 November 2013*
15 November 2013*
January 2014*
10 January 2014*
Shareholder security
An increasing number shareholders have been contacting us to
report unsolicited and suspicious phone calls that they have
received from ‘brokers’ offering to buy their shares at a price far
in excess of their market value. We believe this may be a scam,
commonly referred to as a ‘boiler room’. The callers obtain your
details from publicly available sources of information, including
the Company Share Register, and are extremely persistent and
persuasive.
Shareholders are cautioned to be very wary of any unsolicited
advice, offers to buy shares at a discount, sell your shares at a
premium or requests to complete confidentiality agreements
with the callers. Remember, if it sounds too good to be true, it
probably is!
More detailed information and guidance is available on the
‘Investors’ section of our corporate website. An overview of
common current scams is available on the Action Fraud website
www.actionfraud.police.uk
American Depositary Receipts (ADRs)
The Company has a Level 1 ADR program. This enables US
investors to purchase Marks & Spencer American Depository
Shares (ADS) in US dollars ‘over the counter’. The Company
has chosen to have the ADRs quoted on the OTC market’s
highest tier, International PremierQX.
For information on OTCQX go to otcqx.com
For Deutsche Bank email: DB@amstock.com
ADR website: adr.db.com
Toll free callers within the US: 1 866 249 2593
For those calling outside the US: +1 (718) 921 8137
Ex-dividend date – Final dividend
Record date to be eligible for the final dividend
Results – Quarter 1 Interim Management Statement†
Annual General Meeting (11am)
Final dividend payment date for the year to 30 March 2013
Results – Half Year†
Ex-dividend date – Interim dividend
Record date to be eligible for the interim dividend
Results – Quarter 3 Interim Management Statement†
Interim dividend payment date
† Those registered for electronic communication or news alerts at marksandspencer.com/thecompany will receive notification by email when this is available.
* provisional dates.
How to get in touch
Registered office and Head Office
Waterside House, 35 North Wharf Road,
London W2 1NW
Telephone +44 (0)20 7935 4422
Registered in England and Wales (no. 4256886)
Registrars
Equiniti Limited,
Aspect House, Spencer Road, Lancing,
West Sussex BN99 6DA
United Kingdom
Telephone 0845 609 0810
and outside the UK +44 (0) 121 415 7071
Online: help.shareview.co.uk
From here, you will be able to securely
email Equiniti with your enquiry.
Group Secretary and Head of Corporate Governance
Amanda Mellor
Additional documents
For both the Annual Report or Annual Review go to
marksandspencer.com/thecompany
Alternatively, call 0800 591 697
Please note, students are advised to source information
from our website.
Contact us
email us at chairman@marks-and-spencer.com
Customer queries: 0845 302 1234
Shareholder queries: 0845 609 0810
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Index
Annual report and financial statements 2013 116
A
PAGe
F
PAGe
N
PAGe
Nomination Committee
Non-GAAP performance
measures
P
Plan A
Principal risks and uncertainties
Principle activities
Profit and dividends
Power to issue shares
Political donations
R
Remuneration Committee
Remuneration report
S
Segmental information
Shareholder information
Share capital
Share schemes
Significant agreements
53
88
32
45
72
72
72
76
56
55
86
114
72, 107
95, 96, 97
73
Statement of comprehensive income 78
Statement of financial position
Stores
Subsidiary undertakings
T
Taxation
TSR
Trade and other payables
Trade and other receivables
Transfer of securities
v
Variation of rights
W
Womenswear
79
24
112
83, 89
67
100
100
72
72
18
89
101
100
101
101
34
113
21
12
76
98
75
80
20
78
98
73
82
28
79
79
12
20
20
14
4
75
20
26
Accountability
Accounting policies
Appointment and retirement
of directors
Audit Committee
Auditors
Auditors’ remuneration
Auditors’ report
Annual General Meeting
B
Board
Borrowing facilities
Brand
Business model
C
Capital commitments
Capital expenditure
Cash flow statement
Charitable donations
Conflicts of interest
Corporate governance
Cost of sales
Creditor payment policy
Critical accounting estimates
and judgements
D
45
82
74
50
76
87
77
76
40
101
16
7
107
36
81
75
74
38
87
75
Finance costs/income
Finance leases
Financial assets
Financial instruments
Financial liabilities
Financial review
Fixed charge cover
Food
Footfall
G
Going concern
Goodwill
Groceries Supply Code of Practice
H
Hedging reserve
Home
I
Income statement
Intangible assets
Interests in voting rights
International Financial Reporting
Standards
International
85
Inventories
Investment property
K
Deadlines for exercising voting rights 73
Key Performance Indicators
Deferred tax
Depreciation
Derivatives
Diluted earnings per share
Directors’ emoluments
Directors’ indemnities
Directors’ interests
Directors’ responsibilities
106
Kidswear
83, 86, 99
L
104
Lingerie
78
68
74
66
76
76
M
Management Committee
Marketplace
Market value of properties
Menswear
Multi-channel
Disclosure of information to auditor
Dividend cover
Dividend per share
e
Earnings per share
Employees
Employee involvement
Employees with disabilities
Equal opportunities
Essential contracts
113
90, 113
78
91
74
75
75
75
Marks and Spencer Group plc This report is printed on Revive Pure
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View this Annual Report and our Plan A Report online
marksandspencer.com/annualreport2013
marksandspencer.com/plana2013
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